Starbucks Corporation (SBUX) might be showing signs of life, but TD Cowen analyst Andrew M. Charles isn't ready to celebrate just yet. He's sticking with his Hold rating and $84 price target, arguing that the coffee giant's turnaround is considerably more complicated than the market's warming sentiment would have you believe.
The reality, according to Charles, involves stubborn cost pressures that could keep earnings under pressure even as sales begin to recover. His deep dive into labor spending, margin dynamics, and 2026 projections paints a picture that's quite a bit messier than what Wall Street consensus expects.
Sure, there are some positive signals. Revenue trends have started firming up, potential tariff relief is offering some breathing room, and progress in the China joint venture adds a dose of cautious optimism. But Charles sees Starbucks grinding through what he calls a "nonlinear, uneven reset"—which is analyst-speak for "this is going to take a while and it won't be smooth."
The biggest wildcard? North American store operating expenses. Charles projects 2026-27 earnings per share roughly 5% below consensus, and it all comes down to how much the company needs to spend on labor and operations. His model assumes North American store operating expenses will hit 57.8% in 2026, slightly above the 57.2% that consensus is banking on. That difference matters more than you might think—every 10 basis points of change can swing EPS by about $0.02.
Charles is embedding around $531 million in incremental operating expenses for 2026, nearly double the $308 million that consensus expects. Those labor investments appear likely to exceed early guidance, and they're not the only headwind. He's also forecasting North American cost of sales at 31.0%, anticipating continued pressure from coffee pricing despite some tariff relief.
His EPS estimates land at $2.25 for 2026 and $2.84 for 2027, weighed down partly by a more modest revenue lift from closing 438 underperforming North American stores. While he still models 3.3% same-store sales growth in North America for 2026 and expects earnings to improve as sales recover, Charles flags several risks: weakening value perceptions, intensified competition, and the expansion of small-format drive-thrus that could complicate the picture.
Despite all these cautions, Charles maintains his $84 price target, valuing Starbucks at 25x FY2028 estimated earnings. That's one turn above the five-year average forward P/E of 24x, which he argues is justified by improving sales trends, investor anticipation ahead of the January 29 Investor Day, recent multiple expansion across the restaurant sector, and a healthier North American footprint following those store closures.
The bottom line: Starbucks shares were down 2.26% at $85.14 on Monday. The recovery narrative might be gaining traction, but the path forward looks bumpier than the bulls are betting on.