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Without a doubt, one of the greatest growth stock stories in the last 30 years has been Starbucks (SBUX).

From a small, Seattle-based premium coffee chain, the company has grown into a global behemoth, one of the most successful global restaurant concepts of all time and synonymous with coffee the world over. Today, Starbucks operates over 36,000 locations across the globe, putting it 3rd behind only Subway and McDonald's (MCD).

Starbucks has made early shareholders quite wealthy. Since going public at $17 in 1992, Starbucks shares have split six times, for an effective cost basis of about $0.27 a share. Given the company's current $100 stock price, that represents a 33,000% return on investment or about 21.2% annually - and that is before dividends! That absolutely crushes the S&P's 7.6% annualized gain over the same period.

Today, though, Starbucks is at an interesting crossroads. It is a large company facing a management transition and two potential paths. Does it continue to pursue its history of strong growth, or does it pull back and focus on maintaining its success and rewarding its shareholders? Can it successfully navigate yet another CEO transition - a thing it has failed to do twice in the recent past? At a share price approaching an all-time high, does the stock still have any value for potential shareholders?

Let's take a look at all of these questions and determine if Starbucks is a worthy addition to the Watch List.

Starbucks At An Inflection Point

For most of its public history, Starbucks has been an outstanding company (and stock), delivering steady earnings growth, new store openings, product expansions, and so forth.

But now, the company is at an inflection point.

Previous CEO Kevin Johnson was ousted, abruptly, about a year ago (March 2022). No one is quite sure why, but it should be noted that Starbucks stock trailed the market by over 30% during his tenure.

Like the last CEO ouster of Jim Donald in 2008, who should step into the top role but... Starbucks' legendary former CEO himself, Howard Schultz! Does anyone doubt that Schultz wanted Johnson out?

In my opinion, this was a clear question of strategy. Johnson saw Starbucks as a maturing company that had largely fulfilled its store potential, and pursued a strategy of measured growth combined with increased financial returns to shareholders. He had rapidly increased the dividend, which now yields a respectable 2%. Share buybacks were fast and furious, with a 19% reduction in outstanding share count between 2017 and 2021. Top line growth, on the other hand, had been modest at best, averaging just over 6% during his 5 year tenure.

One can see what Schultz thought of this approach. One of his first actions was to immediately suspend share buybacks!

Schultz then presented the company's new grand strategy at its Investor Day in September. The buzzword: GROWTH!

In brief, Schultz's plan calls for investments to accelerate sales growth into the 10-12% range, and EPS growth in the 15-20% range through 2025. How? It plans to open an incredible 20,000 more locations worldwide, many based around smaller, digitally-oriented formats. It aims to make its complex cold drinks (70% of sales) easier and faster to create. And it plans to increase investments around its ready-to-drink products sold at grocery and convenience stores.

Oh Yeah, There's A New CEO Coming In Too!

Schultz was on a roll, but maybe the biggest announcement at Investor Day was of incoming CEO Laxman Narasimhan, formerly of Reckitt, a consumer products company best known for Lysol, Clearasil, and Durex condoms.

He started at Starbucks on October 1, but is not officially taking over until April.

Maybe it's just me, but wouldn't Starbucks want to hire a new CEO BEFORE devising a major set of company initiatives for the next 5 years??

Clearly, Narasimhan was hired to follow Schultz's plan. Most Starbucks investors will probably be ok with this. Schultz is a Hall of Fame CEO with a vision for this company that neither Jim Donald or Kevin Johnson were able to live up to. As long as Narasimhan is going into this expecting to be a Schultz understudy and "lead like Howard led", this could work out fine.

But if not... there could be another CEO search up ahead.

What Does All This Mean for Investors?

Starbucks has been a great company with an unimpeachable, global consumer brand. It generates a ton of cash and has averaged cash returns on invested capital of over 15% for many years. Even without trying particularly hard, it has managed respectable 5-year revenue growth and sustained operating margins even through COVID and operational challenges.

Are Schultz's new growth targets achievable? Yeah, I think they are. Smaller location concepts make a ton of sense given Starbucks' out-sized digital sales mix, and these are likely to be more profitable on a square foot basis as well.

The big wild card is the CEO transition. Starbucks just hasn't survived those very well, and Schultz has had to return as CEO twice now to right the ship. What happens the next time? Restaurant concepts, even large ones with strong brands, face constant competition and fickle consumers. Things can and have turned south on Starbucks and its investors in the past.

I'm also concerned about one of Starbucks' main growth focuses over the last decade: China. U.S.-China relations continue to sour, and the Chinese regime continues to display an increasingly anti-business attitude. Starbucks saw its China comps fall 29% in Q4, and the country looks to be a headwind to growth for the near future, not a tailwind.

If you like Starbucks, I think it's a "fair" buy here. My fair value estimate is $102, which is right about where the stock trades at present. However, it misses the cut as a Watch List stock - there are just too many risks to have a high confidence in it going forward.

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