Starbucks Corporation (Nasdaq: SBUX) is making aggressive changes to get its stock back on track. The latest change the company announced this week is the departure of CFO Scott Maw, and analysts say change is a good thing for the struggling coffee giant.
SBUX stock hit multi-year lows after the company announced that Maw would be retiring in November after seven years with the company. The announcement comes just three weeks after Starbucks revealed founder Howard Schultz would be stepping down as executive chairman.
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Management isn’t the only thing that’s changing at Starbucks. Last week, the company announced it would be aggressively beefing up its capital return, and Starbucks has now seemingly transitioned from a growth stock to a dividend stock.
Starbucks is projecting just 1 percent same-store sales growth in the third quarter, and the company said it would actually be closing 150 stores next year. At the same time, a 20 percent dividend hike coupled with a falling share price has pushed the stock’s dividend yield to about 3 percent, well above the S&P 500 average yield of just 1.8 percent.
Analysts have mixed opinions about Starbucks’ new strategy. After Starbucks announced its plans for $25 billion in capital return by 2020, S&P downgraded the company’s credit rating from A- to BBB+, a rating corresponding to lower-medium tier investment grade.
“We think this second increase in its capital return plans represents a rapid shift in financial policy while the company is experiencing a slowdown in comparable sales growth to low-single-digit percentages,” S&P said in its downgrade note, according to the Financial Times. “We expect the company will issue $3 billion in additional debt in the next year, which would push leverage over 2x on a sustained basis.”
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SBUX stock is trading below $49 for the first time since 2015, but Bank of America analyst Gregory Francfort says additional downside for SBUX stock is likely limited.
“The stock is reaching a tipping point at which the capital return overwhelms near-term fundamental concerns,” Francfort says.
He says the stock’s valuation and growth metrics are still favorable compared to restaurant peers such as Sonic Corp. ( SONC) and Darden Restaurants ( DRI).
“In our view, valuation should skew upward to reflect the scarcity of large cap growth companies,” Francfort says.
Bank of America has a “buy” rating and $56 price target for SBUX stock.
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Starbucks Corporation (SBUX) Stock Isn’t as Bad as it Looks originally appeared on usnews.com
