Starbucks Corporation (SBUX)

Discount cash flow analysis

Sell Overvalued by 72.1%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Starbucks Corporation, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $15.23 $14.94 $14.67
Terminal Growth% 0 $15.36 $15.07 $14.79
  +1% $15.49 $15.19 $14.91

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $18.24 (overvalued by 66.21%) - 12 months ago
  • GordonGekko created a new valuation of $26.75 (overvalued by 18.94%) - over 6 years ago
  • mlillard created a new valuation of $12.23 (overvalued by 45.88%) - over 7 years ago
  • mlillard created a new valuation of $12.23 (overvalued by 45.88%) - over 7 years ago
  • mlillard created a new valuation of $12.12 (overvalued by 46.37%) - over 7 years ago
  • mlillard created a new valuation of $12.09 (overvalued by 46.5%) - over 7 years ago
  • jignesh11 created a new valuation of $15.07 (overvalued by 33.32%) - over 7 years ago
  • jignesh11 created a new valuation of $15.07 (overvalued by 33.32%) - over 7 years ago
  • mlillard created a new valuation of $12.17 (overvalued by 44.15%) - over 7 years ago
  • smdet created a new valuation of $25.79 (undervalued by 35.88%) - almost 8 years ago
  • smdet created a new valuation of $25.79 (undervalued by 35.88%) - almost 8 years ago
  • GordonGekko created a new valuation of $11.95 (overvalued by 38.72%) - 8 years ago
  • SethWellbourne created a new valuation of $7.52 (overvalued by 33.21%) - over 8 years ago
  • GordonGekko created a new valuation of $11.73 (undervalued by 40.31%) - over 8 years ago
  • rileyj98 created a new valuation of $17.00 (undervalued by 103.35%) - over 8 years ago
  • GordonGekko created a new valuation of $17.00 (undervalued by 8.01%) - over 9 years ago
  • TheCrunchBlog created a new valuation of $15.07 (overvalued by 4.26%) - over 9 years ago
  • GordonGekko created a new valuation of $17.63 (overvalued by 0.79%) - over 9 years ago
  • Sam created a new valuation of $18.45 (undervalued by 2.22%) - over 9 years ago

Comments

Starbucks puts on the brakes – what does it mean for the current valuation

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/07/starbucks-puts-on-the-brakes-%e2%80%93-what-does-it-mean-for-the-current-valuation/

Starbucks grew revenues from US$5.3 billion in 2004 to US$9.4 billion in 2007 – a 21% compound annual growth rate. Our assumptions of revenues for the next three years are US$10.5 billion in 2008 growing to US$12.5 billion in 2010 – a 9% compound annual growth rate. We have projected EBITDA margins to be flat at 10%. We have used a terminal growth rate of 4.5%. We calculated this terminal growth rate based on year three growth of 8.7% dropping to a 4% stable growth rate by year 10. We used a terminal capital expenditure number of US$800 million. We have used a WACC (discount rate) of 10%.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 40,119
Net Debt (Long-term borrowings less cash): 822
Equity Value: 11,458
Number of Shares Outstanding: 728,000,000
Calculated value per share: $15.07

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.