"People still need their coffee fix, despite the tough economy," said David Tarantino, analyst at Robert W. Baird & Co.
Coffee stocks keep rising, despite the fact that consumer spending is under quite a bit of pressure.
“A lot of these companies improved their margins by cost cutting and through lower commodity costs, and I think that a better earnings outlook has led the stocks so far this year,” said Tarantino.
“I think the runup in the group has really been largely a function of the better earnings outlook."
Tarantino expects coffee retailers to continue growing — and feels innovation will be the key to success.
“I think for Starbucks in particular, food has been an opportunity category and I think it will help on the margin," he said. “These companies need to innovate on the core beverage offering in order to be successful longer term.”
Peet's Coffee and Tea
Tarantino remains neutral:
SBUX, PEET and CBOU are investment banking clients of Robert W. Baird & Co.
Robert W. Baird & Co. maintains a trading market in the securities of SBUX, PEET, and CBOU.