Can Starbucks shares rally after reports of another activist investors take shape?

Activist investor Starboard Value has recently taken a position in Starbucks (SBUX) according to the Wall Street Journal, signaling a potential push for strategic changes aimed at improving the coffee giant's stock performance. While the exact size of Starboard's stake and its specific demands remain unclear, this development comes at a time when Starbucks is already navigating challenges from another activist investor, Elliott Investment Management. Elliott has been engaging with Starbucks’ management, pushing for changes amidst the company’s declining sales in key markets like the U.S. and China. The presence of two activist investors could intensify pressure on Starbucks to make significant adjustments to its strategy.

The news comes as SBUX is attempting to push above key support levels at the $75 level. The 50-day moving average looms above ($77) as a potential key resistance level. Bulls will have to push against a potential headwind of weaker jobs numbers as the stock tries to break away from a 15 month swoon.

Starboard's involvement adds a new layer of complexity to Starbucks' current situation, particularly as the company faces significant operational challenges. Under the leadership of CEO Laxman Narasimhan, Starbucks has already had to revise its financial guidance downward twice this year, with sales slumping and the stock price dropping around 20% in 2024. The company is also evaluating its operations in China, a critical market where it has faced a 14% drop in same-store sales. Narasimhan has called for investor patience as Starbucks works on initiatives to regain customer loyalty and improve store efficiency, but the added scrutiny from activist investors could accelerate demands for faster results.

The entry of Starboard, known for its aggressive activism in other companies, could lead to calls for more drastic measures at Starbucks. While it remains to be seen whether Starboard will seek representation on Starbucks’ board, its track record suggests that it might push for strategic shifts or operational overhauls. This could range from cost-cutting measures to changes in leadership or even strategic divestments. The uncertainty surrounding Starboard's intentions is likely to keep investors on edge, particularly as Starbucks continues to struggle with declining sales and shifting consumer behavior in its core markets.

Complicating matters further is the influence of former CEO Howard Schultz, who remains a significant shareholder and vocal critic of the company’s current direction. Schultz's continued involvement could either align with or conflict with the goals of the activist investors, creating a potentially volatile situation in Starbucks' boardroom. As Starbucks navigates these internal and external pressures, the company’s management will need to balance the demands of activists with its long-term vision for the brand, particularly as it seeks to stabilize its operations in China and other key markets.

Overall, the involvement of Starboard Value represents a significant moment for Starbucks as it faces multiple challenges on several fronts. The presence of two activist investors suggests that there could be significant changes ahead for the company, particularly if these investors push for board representation or more radical strategic shifts. As Starbucks works to regain its footing in a challenging market environment, the actions and demands of Starboard and Elliott will likely play a critical role in shaping the company’s future direction.