Starbucks Corporation (SBUX) Crushed after Coffee Hike Forecast

Starbucks Corporation (NASDAQ:SBUX)

Starbucks Corporation  shares were down on Monday afternoon after an options expert said that the price of coffee was set to rise. Rises in the price of coffee, Carter Worth told CNBC, lead to reversal in Starbucks stock.

Starbucks Corporation (NASDAQ:SBUX)

At time of writing shares in Starbucks Corporation were trading for 55.94, down 2.2 percent for the day so far. In the last three months shares in the coffee seller have risen by more than 12 percent. That means that today’s change shouldn’t be seen as part of a log term trend, at least until it turns into one. 

Starbucks hikes prices ahead of time

In the first week of July Starbucks revealed that it would increase the price of its drinks in much of the US, and part of Canada, despite the low in coffee prices. The firm, back then, said that labor costs and rent had both risen and forced it to hike the price it charged for its coffee.

Many coffee sellers in the US have been cutting their prices in line with the price of the raw material but Starbucks, with its extensive moat, has been able to keep its prices high, and in fact raise them, so that it can better absorb a future jump in the price of the beans it imports from across the world.

Mr. Worth said that his analysis of the Starbucks stock chart showed that the firm’s share price was well above its trend line. At the same time he reckons that coffee prices will have to increase from the lows they sit at right now.

Those two trends should come together to put pressure on the stock, in Worth’s mind, and that appears to be playing out in a limited way on Monday’s market.

Looking forward to Starbucks

Barclays analyst Jeffrey A. Bernstein released a report on Starbucks last Friday and told his clients that the stock was a Buy, and looked to the long term. He said that Starbucks  is a “leading global growth story” but admitted that there were short term problems that would hit the firm when it reveals its earnings for the fourth quarter.

Currency rates, and increased investments are likely to slow profit growth in the coming months says Bernstein. Still he’s looking to “a return to the ‘beat & raise’ scenario of SBUX in years past.” Barclays put a $54 price target on the stock.

That report, published on July 24, after Starbucks unveiled its earnings numbers for the three months through June, is outdated at this point. The firm’s results sent shares much higher, hitting an all time high of $59.32 last week.

Those highs are part of the reason that traders feel nervous about the future of the firm heading into the second half of 2015. Mr. Worth’s chart analysis was likely just a catalyst for an already anxious market to sell off. Unless you’ve down the technical analysis yourself, and know something or other about the price of coffee, it’s better not to act on his idea of the future of the market.

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