After Being One of the Street's Biggest Bulls on Starbucks, Hedgeye's Howard Penney Turns Bearish

Takeaway: While Starbucks is still a great company with an enviable management team, the stock is far less attractive today.

After Being One of the Street's Biggest Bulls on Starbucks, Hedgeye's Howard Penney Turns Bearish - hwp 1


Editor's note: The following excerpt below is the introduction to Hedgeye restaurants sector head Howard Penney's new 80-page slide deck detailing his short thesis on Starbucks. After five years of being one of the street's biggest bulls on SBUX, Penney now thinks "the stock is far less attractive." For more information on Penney's research please ping


It’s been seven years since Howard Schultz penned his now famous memo to Starbucks’ management and employees, outlining where the company had gone wrong and what it needed to do to get back on track, and it’s been six years since we first turned positive on the stock.

But nothing lasts forever. McDonald’s went on an eight-year corporate revival before it lost its luster and we fear Starbucks is nearing the end as well. In this presentation, we will outline a number of concerns we have with the company which makes us believe the street is too optimistic about its future prospects.


After Being One of the Street's Biggest Bulls on Starbucks, Hedgeye's Howard Penney Turns Bearish - hwp sbux

We recently read that Harvard Business School Professor and Historian Nancy Koehn has studied Starbucks and its leader, Howard Schultz, for nearly 20 years. She recently released a new HBS Case Study, “Starbucks Coffee Company: Transformation and Renewal,” which traces “the dramatic arc of the company’s past seven-plus years – a period that saw Starbucks teeter on the brink of insolvency, dig deep to renew its sense of purpose and direction, and launch itself in new, untested arenas that define the company as it exists today.”

While all of this may be true, we too have been following Howard Schultz and Starbucks for over 20 years. Unlike Ms. Koehn, however, we did not go to Harvard and we’re not HBS Professors. But we did release a Hedgeye Black Book in early 2009 detailing why we believed Starbucks was a great company and the stock was a great buy.


Today, while Starbucks is still a great company with an enviable management team, the stock is far less attractive. More specifically, and perhaps to the heart of the topic, we believe the company’s domestic business is maturing and management is attempting to stem this decline by rapidly deviating from its core. With sentiment near an all-time high, this HBS Case Study merely seems like another example of a Starbucks “top.”

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more