Back to top

Analyst Blog

Starbucks Corporation (SBUX - Analyst Report) recently announced the closure of its previously-announced deal to acquire Atlanta-based Teavana Holdings, Inc. , a specialty retailer of tea, for approximately $620 million in cash. Teavana has now become a wholly owned subsidiary of Starbucks.

Teavana operated through 300 mall-based stores, which Starbucks plans to expand. Starbucks is also planning to establish new stand-alone Teavana neighborhood stores domestically as well as internationally. Moreover, Starbucks plans to open tea bars (which will create customized tea beverages) inside these stores, which presently sell only loose-leaf teas and related merchandise.

We believe that the collaboration of Starbucks and Teavana provides the former a global opportunity to create a unique retail experience in the $40 billion tea category. When Starbucks announced the deal in mid-November, it claimed that tea is the world’s second largest beverage category that offered a large scope for innovation, which Starbucks plans to exploit. However, management stressed that focusing on tea does not signal a slowdown in its core coffee business.

The acquisition is complementary with Starbucks’ already existing core tea business of Tazo tea. Starbucks sells Tazo tea in stores as well as across the foodservice channels. Over time, Starbucks plans to create a two-tiered business, where both the Tazo and Teavana branded products will co-exist.

Starbucks is constantly on the lookout for new businesses that are complementary with its core coffee offerings. Six months ago, Starbucks acquired bakery chain La Boulange, and a year back it bought Evolution Fresh juice stores to expand its footprint beyond coffee. Teavana is another step in that direction.

Teavana’s shareholders received $15.50 per share in cash for the merger. The acquisition is expected to add a penny to 2013 earnings.

Our Recommendation

We currently have a long-term Neutral recommendation on Starbucks. However, the stock carries a Zacks #2 Rank (a short-term Buy rating). Starbucks competes with McDonald’s Corp. (MCD - Analyst Report) which carries a Zacks#3 Rank (short term ‘Hold’ rating).

Starbucks is gaining momentum following the solid results in fiscal 2012; regular product innovations like the at-home coffee machine, Verismo; and great strategic deals like La Boulange, Evolution Fresh and now Teavana.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.00 +3.09%
SANCHEZ ENE… SN 34.18 +2.67%
THE PANTRY… PTRY 21.02 +2.09%
INTEL CP INTC 35.15 +1.88%
CLAYTON WIL… CWEI 117.30 +1.78%