Why Hightower's Stephanie Link is buying Starbucks: It's still in the very early stages of CEO Brian Niccol's turnaround. There are early signs the turnaround is working with North American same-store sales flat last quarter after six straight quarterly declines. Profitability potential: Niccol's initiatives could drive operating margins to the mid-teens from 9%. Many doubters: Majority of analysts on Wall Street are still skeptical so she likes the risk/reward. I like the turnaround story at Starbucks for 2026. They have very strong leadership under Brian Niccol, who was named CEO in September 2024, an announcement that initially boosted the stock. The shares have since come back to earth as investors and Wall Street skeptics grew impatient about the pace of his turnaround. But consider this, Chipotle shares eventually rallied more than eightfold under Niccol's tenure as Chipotle CEO from 2018 to 2024. Starbucks shares are finally starting to pick up with the stock gaining 14% so far in 2026. I think there's more to go. I first added shares of this stock after the October quarter results when I thought it looked like the growth strategy and the investment initiatives from Niccol were starting to work. We'll get an update from Niccol this week when Starbucks reports its fourth-quarter results Wednesday before the bell. An investor day will follow on Thursday where Niccol is likely to go into more detail on his two main growth initiatives: recreating coffeehouse culture and the "Green Apron Service" designed to accelerate order delivery. Wells Fargo estimates that Green Apron has led to service times of less than four minutes in 80% of U.S. co-operated stores. Turnaround starting to work For the third quarter, North America same-store sales came in at flat. That doesn't sound that good on the surface, but the prior six quarters had negative growth. We also saw better international results of 3% growth with sales in China up 2%. For the fourth-quarter, analysts believe Starbucks will report Wednesday that same-store sales increased by 2% in North America, according to consensus FactSet figures. Deutsche Bank sees an even bigger jump of 3% in same-store sales growth. Profitability set to improve Operating margins are still very low at 9.4%, but therein lies the opportunity in my mind. I think they can get back to mid-teens operating margins over the coming years. Deutsche Bank estimates operating margins can get back to 17% at some point. And if that is the case, I think that you're going see $3.50 to $4 in earnings power, putting this at about stock at about 24 times earnings. Historically, the stock has traded at a price-earnings multiple of 28 times. Currently, the stock looks rich in the space, but analysts aren't estimating that same earnings pop that I see in the future. When those analysts catch up, the stock's multiple will be cheaper compared to the group. The multiple will then expand from there as more investors recognize the value in the stock. Wall Street too negative The persistent negativity from the analyst community makes for a good entry on the stock. Right now, less than half of Wall Street sees Starbucks as a good buy right now. Along with the quarterly results, Starbucks is expected to give 2026 and long-term profit guidance this week, giving Niccol a chance to finally give a detailed blueprint of his turnaround. Analysts are in wait-and-see mode on the stock, but by the time they are convinced, it may be too late to get in. Wall Street could be convinced as early as Wednesday. — With John Melloy All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
