A new report by Stanford C. Bernstein looks at the impact falling coffee prices could have on Starbucks Corporation SBUX 1.47%‘s bottom line.

Analysts conclude that coffee prices could have a material impact on the company’s earnings in coming years.

Inverse Correlation

Analysts point out that Starbucks’ stock price and the price of coffee demonstrate an inverse correlation, and the price of coffee will likely dictate whether Starbucks’ earnings come in at the top or the bottom of the forecasted range.

While analysts explain that compared to same-store sales, global unit growth and operating margins, coffee price has a relatively small impact on Starbucks’ bottom line, the high volatility of coffee prices produces a larger impact on the company’s earnings than other operating expenses.

Complex Forecasts

While an inverse correlation between coffee prices and earnings seems easy enough to understand, analysts point out a couple reasons the relationship is not as simple as it seems.

First, Starbucks typically locks in its coffee prices up to 18 months in advance. Second, because Starbucks buys higher-quality coffee beans than the ones used to measure the Arabica benchmark spot price, the correlation is not perfect.

Outlook

Analysts predict that current coffee prices will produce a $0.03 – $0.04 earnings boost for Starbucks in FY2016. The report notes that the impact of low prices could have further upside if Starbucks locks in a particularly good price or if volatile coffee prices continue to remain low.

Stanford C. Bernstein rates Starbucks Outperform and has a $112 target on the stock.

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