Starbucks Gets a Perk

Just when java-giant Starbucks had been all but written off by many investors as a stale brand , a couple of analyst upgrades got things brewing up again in no time.

Recently analysts Marc Greenburg of Deutsche Bank raised his target price on the gourmet coffee purveyor from $9 to $14 and Jeff Farmer of Jeffries & Co. raised his targets from $14 to $16. Both analysts cited expectations of brighter than anticipated earnings in the upcoming quarters.

Starbucks' stock surged over 18% on the good news, which took it to a new 52 week high of $17.39 (before falling 9 cents in afterhours trading). The rally couldn't have come at a better time for shareholders of the once "darling" of Wall Street.

With the economy still yet to show any real signs of life, consumers have been forced to continue to change their spending habits. While they might still be willing to splurge for their favorite "cup of joe", that cup is not as big as it once was. With money as tight as it is right now, coffee aficionados are not as quick to shout out for a "Venti" as they once were. Grande and Tall, even though they don't sound nearly as cool, are becoming just fine with drinkers nowadays.

McDonalds has also shown that ambiance is not all that coffee drinkers are after either. By luring away many of Starbucks once "faithful" following with their popular McCafe menu, McDonald's has proven that price and speed wins over taste and atmosphere in a down economy.

Starbucks also has other competitors on its heels to deal with. Caribou Coffee and Peet's Coffee and Tea are both fighting for market share in the gourmet coffee industry. Not to mention the plethora of local mom and pop coffee houses that popped up all over the place in the past decade.

Surely shareholders are hoping that today's good news is a sign of brighter days to come for Starbucks. In my humble opinion, however, I am not as confident that Starbucks has what it takes to maintain their still prominent position in the gourmet coffee industry.

Times change and tastes change. Most of us can probably remember when it seemed that everyone in America couldn't get enough of Col. Sander's secret recipe. Things were great at KFC until people started to become more concerned about their health than splurging on the greasy goodness of Sanders' herbs and spices.

Could the economic downturn turn out to be the ultimate jolt that caused consumers to become more concerned about their pocketbook than indulging their taste buds with high priced lattes, frappuccinos and espressos?

Only time will tell if Starbucks will be the company that present day shareholders are dreaming it will be. Until I see something that shows me that Starbucks can once again be the dominant player in the gourmet coffee industry - I will just stay on the sidelines with my money in hand. Well that's as long as I don't get the urge to yell out "Venti" anytime soon!

Sources:

Jeanine Poggi: "Shares of Starbucks Jumpy on Upgrade"