Starbucks Corp SBUX

Starbucks: No Change to $96 Intrinsic Valuation on Elliott Activist Stake but Interest Piqued

The Wall Street Journal reported that activist investor Elliott Investment Management has built a stake in wide-moat Starbucks, driving a 6%-7% surge in share prices during July 19 trading. The firm has reportedly engaged in private talks with the coffee company regarding ways to increase its share price after a brutal year-to-date performance (down 21% through July 18 close), though no specifics were revealed. Therefore, it's challenging for us to justify the market reaction until more-concrete measures are proposed. We hold our $96 per share intrinsic valuation and continue to view shares as undervalued despite the surge, while maintaining that the next few quarters are likely to prove extremely testing for the premium specialty coffee chain. The firm's premium fare tends to underperform in environments where consumers are seeking value for the money, and we envision very little benefit from customers trading down into Starbucks the way we might see with more value-oriented fast-food competitors.