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Starbucks is still a buy despite chairman Howard Schultz leaving, UBS says

  • Starbucks shares fell during afterhours trading following news that longtime leader Howard Schultz will be stepping down this month — but the stock is still a buy, according to UBS.
  • Shares of the company fell 1.35 percent overnight after Schultz delivered a memo to employees on Monday announcing his departure as executive chairman.
  • Under Schultz's leadership, the stock has grown 21,000 percent since its initial public offering in 1992.
A Starbucks barista fulfills an order in a South Philadelphia store.
Mark Makela | Reuters
A Starbucks barista fulfills an order in a South Philadelphia store.

Starbucks shares fell during afterhours trading following news that its longtime leader Howard Schultz will be stepping down this month — but the stock is still a buy, according to analysts at UBS.

"We expect shares will come under modest initial pressure given the departure of such a unique talent and visionary, but quickly return to trading on expectations for near-term fundamentals," the Swiss lender said in a client note Tuesday.

Shares of the company fell 1.35 percent overnight after Schultz delivered a memo to employees on Monday announcing his departure as executive chairman.

Credited with building the modern Starbucks, Schultz joined the iconic coffee chain in 1982 as director of operations and marketing, and it has since become a globally recognized brand with more than 28,000 locations around the world.

This week's price dip follows a downward slide of nearly 12 percent for the company's stock price over the last year, thanks mainly to struggling same-store sales in the U.S. This will be a near-term focus for the brand, but earnings-per-share (EPS) will become increasingly attractive as the trajectory of same-store sales improves, UBS said. Earnings-per-share is a key metric used by traders to gauge a stock's value.

Global growth to 'remain intact'

Schultz has been considered a leader in the corporate world in terms of pairing social responsibility with financial results, initiating projects including charities, free college tuition for employees, and hiring programs for refugees, veterans and military spouses.

UBS expects these values to continue providing a competitive advantage for the brand in domestic and international markets as consumers, particularly millennials, become more ethically conscious in their spending choices.

"Despite recent headwinds, we believe the brand remains well positioned for sustained long-term growth in key U.S. and China growth markets. We expect Starbucks' multi-year strategy is unlikely to significantly change following (Monday's) announcement," the note said.

UBS forecasts the coffee chain will "maintain U.S. and global coffee category outperformance," with multiple sales initiatives enabling what it predicts as 2 to 4 percent same-store sales growth annually over the next few years. It added that while the magnitude and timing of Americas sales improvements remains the near-term challenge, "against low expectations and valuation, we believe downside is relatively limited."

The bank continues to view Starbucks as one of the higher-quality growth stores in the large-cap consumer category with "robust global store development and return of capital opportunities."

Myron E. Ullman, former chairman and CEO of J.C. Penney, will replace Schultz as the next chair of the company's board.

Under Schultz's leadership, the stock has grown 21,000 percent since its initial public offering in 1992. He currently owns 37.8 million shares of Starbucks, or a 3 percent stake, worth about $2.17 billion.

Speculation is now rife as to the outgoing chairman's political ambitions, with rumors that he may be considering a presidential bid. In his memo to company employees, Schultz wrote, "I'll be thinking about a range of options for myself, from philanthropy to public service, but I'm a long way from knowing what the future holds."

—CNBC's Sarah Whitten contributed to this report.