Why Starbucks Stock Skyrocketed This Week

Shares of Starbucks (NASDAQ: SBUX) were skyrocketing this week after the coffee giant stunned investors by dumping CEO Laxman Narasimhan just 17 months into his tenure and naming Chipotle (NYSE: CMG) CEO Brian Niccol as its next leader.

Niccol is highly regarded for arriving at Chipotle when the business was still crushed by the E. coli crisis and leading a successful turnaround. The stock has been up roughly 800% since then.

Starbucks investors are clearly hoping Niccol can work some of the same magic on the ailing coffee chain . According to data from S&P Global Market Intelligence , Starbucks shares were up 25.4% as of 12:25 p.m. ET for the week .

Image source: Starbucks.

Starbucks' big move

Narasimhan's departure wasn't a total surprise. Starbucks' business is flailing after two straight quarters of falling comparable sales and declining profits. The departed CEO had been roundly panned by investors, including Founder Howard Schultz, especially after an interview with CNBC's Jim Cramer, in which he pooh-poohed the idea that the brand was losing customers.

The surge in the stock likely has more to do with Niccol's arrival. Niccol brings a stellar reputation as a turnaround specialist to Starbucks and hands-on restaurant experience, something Narasimhan did not have.

Wall Street roundly cheered the move. Deutsche Bank upgraded the stock to a buy and called the decision a "home run hire," while TD Cowen also upgraded the coffee stock to a buy, calling it a "hall of fame" CEO hire.

What's next for Starbucks

Turning the business around isn't going to be easy, as Starbucks has been hit with complaints over slow service and a change in its brewing methods in the U.S. In China, it's facing rising competition from lower-priced alternatives. However, there are certainly improvements that can be made.

A recovery for Starbucks is likely to take years, but putting Niccol in charge is a good first step. He's set to take over on Sept. 9.

Jeremy Bowman has positions in Chipotle Mexican Grill and Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy .