The hype surrounding the Starbucks CEO is “exaggerated,” says Jefferies

The reason for celebration may be a little premature, analysts at Jefferies believe. In a note Monday, Jefferies Chief Executive Andy Barish downgraded Starbucks shares to Rare and downgraded the company to Underperform, which is a sell rating. It is the first time the analyst has given a sell rating since it began covering the company in 2011, it said Bloomberg Data.

The hype reflected in the company’s stock price and valuation immediately after Niccol’s promotion was, according to Barish and his colleagues, “exaggerated.” Starbucks still has a long road to recovery. He predicted the stock would fall 20% over the next 12 months and set a price target of $76 versus Monday’s closing price of $95.48.

“We believe this addition is too early when very little is known about Mr. Niccol’s plans at the start of his term, which began just weeks ago,” Barish said in the statement.

After taking the helm of Starbucks on September 9, Niccol wrote in an open letter his plans to strengthen the company in his first 100 days as CEO, including the intention to strengthen its supply chain and better balance “to-go” and “for” orders and improving order times. Starbucks, the world’s largest coffee chain, has struggled with declining sales recently, in part because users of the Starbucks app have placed their orders due to long wait times and because consumers are stubbornly cautious. While Niccol has a plan to address these challenges, analysts at Jefferies believe these improvements will not happen overnight.

“While the new CEO indicates that necessary strategic changes are now on the table,” Barish said, “we believe implementation will be difficult as issues such as operations, culture, value perception and technology will take time to resolve .”

Starbucks is full of challenges

Niccol’s predecessor, Narasimhan, did little to inspire Starbucks’ activist investors, despite being hand-picked for the role by founder Howard Schultz. After a lackluster quarter for the company in May, Schultz wrote on LinkedIn that Starbucks should “admit the shortcoming without even the slightest semblance of apology,” standardly criticizing the company and Narasimhan — who had only been in the position for 17 months.

With increasing tensions in the Middle East leading to boycott-related sales declines, as well as customer frustration over increased prices and union members waiting at the bargaining table, Narasimhan left Niccol with a litany of problems to resolve.

But Niccol’s track record of improving restaurant operations is what inspired investor confidence in the first place. Niccol took over as Chipotle as the company reeled from an E. coli outbreak that hospitalized 20 customers and rebranded the fast-casual chain as a culinary-forward company. He pushed limited-time food, introduced efficient digital ordering at Chipotle and set a goal of doubling the number of his U.S. restaurants to 7,000. This happened during his six-year tenure as CEO. Two weeks into his new role, Niccol must set his sights high to become Starbucks’ savior.

“We are refocusing on what has always set Starbucks apart – a welcoming coffeehouse where people come together and where we serve the finest coffee, handcrafted by our expert baristas,” Niccol said in his open letter. “This is our permanent identity. We will innovate from here.”