Elliott Management’s stake in Starbucks is exactly the jolt the struggling coffee stock needs to return to its winning ways. The well-known activist hedge fund has taken a significant position in Starbucks and is in discussions with the company on ways to improve its depressed stock price, The Wall Street Journal reported Friday afternoon. While it’s hardly a surprise — in fact, Jim speculated after Starbucks’ disastrous second quarter that Elliott could get involved — we’re glad this shoe has finally dropped. And we upgraded our rating on Starbucks to a buy-equivalent 1 in response. “I think Starbucks is a very big buy here because of Elliott,” Jim Cramer said Monday on CNBC. “Elliott wants to help … and they can do a lot.” If not for our restrictions, we would have added to our Starbucks position Monday. Starbucks’ second-quarter report on April 30 revealed immense operational challenges including long lines and poor throughput. In North America, its biggest market, transactions were down 7%, indicating fewer orders, while same-store sales dropped 3%. Sluggishness in China, its second-largest market, also dragged down results. “The execution is horrendous” Jim said. However, the Starbucks brand “is unassailable so that if you fix the execution, then I think you have a big winner here.” Shares of Starbucks on Monday were down more than 3%, giving back some of the 6.85% pop they received Friday afternoon after the Journal’s report was published. The stock is down almost 20% year to date, dramatically lagging the S & P 500 , which has advanced nearly 17%. SBUX YTD mountain SBUX stock performance year-to-date. Elliott, led by founder Paul Singer, has an impressive track record investing in companies with underperforming stocks. The activist firm is known to seek board seats to help make major company decisions or revamping corporate strategies to improve fundamentals and drive stagnant stock prices higher. Elliott is no stranger to our portfolio. Last year, the firm and multiple other activists successfully jockeyed for changes at Salesforce , which has seen its stock more than double since E lliott’s stake was revealed in late January 2023 . And in July 2023, Elliott and Constellation Brands entered into a cooperation agreement that enabled the firm to make suggestions to management. That remains a work in progress due to the challenges facing Constellation’s wine-and-spirits business, but its beer business led by Modelo is humming and its capital discipline has been favorable. “If [Starbucks CEO Laxman Narasimhan] is willing to work with them a la what Marc Benioff did at Salesforce and a la Bill Newlands did at Constellation Brands, then Starbucks is going to have a … nice run up,” Jim said during the Club’s Morning Meeting on Monday. “Otherwise, Laxman is going to go.” It’s not yet clear what Elliott may be pushing for at Starbucks, but Wall Street sees its presence in the stock as positive for the Seattle-based chain. Analysts at BTIG said Elliott could push for slower investment in China or an outright sale of its business in the world’s second-largest economy. Other possibilities, according to BTIG, include more aggressive share repurchases and a faster rollout of its new Siren drink-making system that is designed to improve service quality. “These changes could go a long way to driving better fundamental performance, and in turn, a higher share price,” the analysts wrote Monday. The firm, which maintains a buy rating and $100 price target on the rock, argued current sentiment is “overly negative.” Elsewhere, TD Cowen analysts said the near-term opportunity for Starbucks is to cut general and administrative expenses and pick up the pace of returns to shareholders. Improving traffic in the U.S. and eventually China will be more difficult and play out over the medium to long-term, analysts wrote to clients Monday. We’re under no illusions that Starbucks’ troubles will be straightened out when it reports third-quarter results July 30 after the close. But we’ll be listening closely to see if management addresses Elliott’s involvement and offers clues that both parties are working together constructively to turn the ship around. (Jim Cramer’s Charitable Trust is long SBUX, CRM, STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Starbucks Coffee shop in Krakow, Poland on February 29, 2024.
Beata Zawrzel | Nurphoto | Getty Images
Elliott Management’s stake in Starbucks is exactly the jolt the struggling coffee stock needs to return to its winning ways.
