Well, this is certainly a surprise. Saying “price hikes” and “share price gains” in the same sentence is a tough balancing act, logic-wise. But that is what happened; coffee giant Starbucks (SBUX) is planning to hike prices in the face of tariffs, though just when and how are as yet undetermined. Investors reacted positively, and sent Starbucks shares up over 2% in Thursday afternoon’s trading.
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Basically, the 50% tariff on Brazilian coffee imports is hitting Starbucks hard, and the tariffs only kicked in yesterday. With Brazil being the largest coffee importer the United States has, that means a lot of coffee and coffee-related beverages are poised to take a hit. Andrew Charles with TD Cowen, who has a five-star rating on TipRanks, noted that the tariffs could raise costs 3.5%, a $0.02 impact to earnings per share.
While Starbucks does not expect to raise prices soon—it plans to keep them flat for the rest of this fiscal year—hikes may come down the line. Current CEO Brian Niccol noted, “We’ll be smart about how we go about increasing any of those prices.” But with Starbucks already losing market share among the 18-to-34-year-old market—perhaps one of the most price-sensitive markets—it may be a matter of which loss is smallest: the one caused by not hiking prices, or the one caused by hiking prices.
The Union Fights Back
Starbucks’ union headaches, meanwhile, are getting worse, based on a report out of Clearwater, Florida. One of the area’s Starbucks locations went union last summer, and it has been a “constant fight” ever since, the reports noted. Five employees launched a demonstration at the Starbucks location, seeking guaranteed break times and more people hired, a point that Starbucks was planning to follow, at last report.
But one employee, who had helped unionize the Clearwater branch, was fired not long after for “tardiness,” reports noted. While Starbucks quickly issued statements saying that no employee would ever be “…disciplined or fired for engaging in lawful union activity,” the report still likely has some looking askance at Starbucks.
Is Starbucks Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SBUX stock based on 13 Buys, nine Holds and two Sells assigned in the past three months, as indicated by the graphic below. After a 17.48% rally in its share price over the past year, the average SBUX price target of $100 per share implies 10.14% upside potential.
