DA Davidson reiterates Neutral on Starbucks stock, $97 target By Investing.com

DA Davidson reaffirmed a Neutral rating on Starbucks with a $97 price target versus the current $98.58 share price, citing in-line Q2 FY2026 same-store sales but a possible $0.01 EPS miss versus consensus. The firm highlighted pressure from higher coffee costs and tariffs, and expects Starbucks to reiterate or narrow FY2026 guidance ahead of April 28 earnings. While analyst views are mixed, the read-through is modestly cautious rather than highly negative.

Analysis

The setup is less about a near-term brand reset and more about whether Starbucks can stop being treated like a bond proxy with an 80x multiple attached. The market is implicitly pricing a clean margin recovery, but coffee and tariff pressure can easily delay gross margin normalization by multiple quarters, which matters because this is still a throughput story: if comps are merely solid but mix and cost deleveraging stay sticky, EPS will lag even if revenue looks fine.

The second-order dynamic is that Starbucks China divestiture removes a source of headline volatility but also strips out a leg of optionality the market may have been paying for indirectly. That makes the remaining U.S. business the whole valuation debate, and any evidence of labor, promotional, or traffic elasticity weakening would compress the multiple faster than estimates move. In that sense, the risk is not just a one-quarter miss; it is a credibility reset on the path to the 2027-2028 recovery narrative.

Consensus appears too comfortable with the idea that “in-line” comps are enough to support the stock. With the shares still priced for a sharper earnings rebound than the current cost environment likely allows, a modest miss or a cautious guide could trigger a de-rating disproportionate to the size of the EPS variance. Conversely, if management gives even a limited margin bridge showing coffee costs peaking and U.S. traffic holding, the stock can squeeze higher because positioning is likely crowded around skepticism rather than outright bearishness.

Key Decisions for Investors

• Short SBUX into earnings or buy 2-4 week put spreads if the stock remains above $95; risk/reward favors downside because a guide-down or margin caution can compress multiple points quickly even on a small EPS miss.
• For longer-dated exposure, consider a bearish call spread in SBUX 3-6 months out to express a valuation de-rating view with defined risk; target a move back toward the low-$90s if management narrows guidance without convincing margin improvement.
• Pair trade: long DNKN/restaurant supplier beneficiaries with lower cost sensitivity versus short SBUX as a relative value hedge against coffee/tariff inflation; this works best over the next 1-2 quarters if input costs stay elevated.
• If management issues a credible margin bridge and reiterates guidance, cover shorts quickly—this name can gap 5-8% on any evidence that the earnings reset is being deferred rather than canceled.