Starbucks Corporation Valuation – January 2019 $SBUX

Company Profile (excerpt from Reuters): Starbucks Corporation (Starbucks), incorporated on November 4, 1985, is a roaster, marketer and retailer of coffee. As of October 2, 2016, the Company operated in 75 countries. The Company operates through four segments: Americas, which is inclusive of the United States, Canada, and Latin America; China/Asia Pacific (CAP); Europe, Middle East, and Africa (EMEA), and Channel Development. The Company purchases and roasts coffees that it sells, along with handcrafted coffee, tea and other beverages and a range of fresh food items, including snack offerings, through Company-operated stores. The Company also sells a range of coffee and tea products and licenses its trademarks through other channels, such as licensed stores, grocery and foodservice accounts. In addition to its Starbucks Coffee brand, the Company sells goods and services under various brands, including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SBUX – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $80,018,700,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.20 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 235.91% Pass
6. Moderate PEmg Ratio PEmg < 20 25.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 73.96 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.20 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.33 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.50
MG Growth Estimate 15.00%
MG Value $96.22
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $36.24
MG Value based on 0% Growth $21.24
Market Implied Growth Rate 8.65%
Current Price $64.48
% of Intrinsic Value 67.01%

Starbucks Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.14 in 2015 to an estimated $2.5 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Starbucks Corporation revealed the company was trading above its Graham Number of $7.23. The company pays a dividend of $1.26 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 25.8, which was below the industry average of 25.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.78.

Starbucks Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.78
Graham Number $7.23
PEmg 25.80
Current Ratio 2.20
PB Ratio 73.96
Current Dividend $1.26
Dividend Yield 1.95%
Number of Consecutive Years of Dividend Growth 9

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $12,494,200,000
Total Current Liabilities $5,684,200,000
Long-Term Debt $9,090,200,000
Total Assets $24,156,400,000
Intangible Assets $4,583,800,000
Total Liabilities $22,980,600,000
Shares Outstanding (Diluted Average) 1,348,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.60
Sep2018 $3.24
Sep2017 $1.97
Sep2016 $1.90
Sep2015 $1.82
Sep2014 $1.35
Sep2013 $0.01
Sep2012 $0.90
Sep2011 $0.81
Sep2010 $0.62
Sep2009 $0.26
Sep2008 $0.22
Sep2007 $0.44
Sep2006 $0.36
Sep2005 $0.15
Sep2004 $0.12
Sep2003 $0.17
Sep2002 $0.07
Sep2001 $0.06
Sep2000 $0.03
Sep1999 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.50
Sep2018 $2.32
Sep2017 $1.71
Sep2016 $1.45
Sep2015 $1.14
Sep2014 $0.78
Sep2013 $0.50
Sep2012 $0.69
Sep2011 $0.55
Sep2010 $0.40
Sep2009 $0.29
Sep2008 $0.29
Sep2007 $0.30
Sep2006 $0.21
Sep2005 $0.13
Sep2004 $0.11
Sep2003 $0.09

Recommended Reading:

Other ModernGraham posts about the company

Starbucks Corporation Valuation – March 2018 $SBUX
Starbucks Corp Valuation – June 2016 $SBUX
40 Companies in the Spotlight This Week – 2/21/15
Starbucks Corporation Annual Valuation – 2015 $SBUX
14 Companies in the Spotlight This Week – 2/15/14

Other ModernGraham posts about related companies

McDonald’s Corp Valuation – November 2018 $MCD
Sonic Corp Valuation – August 2018 $SONC
Jack in the Box Inc Valuation – July 2018 $JACK
Chuy’s Holdings Inc Valuation – July 2018 $CHUY
Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI
Yum Brands Inc Valuation – April 2018 $YUM
Starbucks Corporation Valuation – March 2018 $SBUX
McDonald’s Corporation Valuation – February 2018 $MCD
El Pollo LoCo Holdings Inc Valuation – Initial Coverage $LOCO

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Starbucks Corporation Valuation – March 2018 $SBUX

Company Profile (excerpt from Reuters): Starbucks Corporation (Starbucks), incorporated on November 4, 1985, is a roaster, marketer and retailer of coffee. As of October 2, 2016, the Company operated in 75 countries. The Company operates through four segments: Americas, which is inclusive of the United States, Canada, and Latin America; China/Asia Pacific (CAP); Europe, Middle East, and Africa (EMEA), and Channel Development. The Company purchases and roasts coffees that it sells, along with handcrafted coffee, tea and other beverages and a range of fresh food items, including snack offerings, through Company-operated stores. The Company also sells a range of coffee and tea products and licenses its trademarks through other channels, such as licensed stores, grocery and foodservice accounts. In addition to its Starbucks Coffee brand, the Company sells goods and services under various brands, including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos.

SBUX Chart

SBUX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SBUX – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $81,946,478,928 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.01 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 272.19% Pass
6. Moderate PEmg Ratio PEmg < 20 28.51 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 14.54 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.01 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 107.70 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.04
MG Growth Estimate 15.00%
MG Value $78.72
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $29.65
MG Value based on 0% Growth $17.38
Market Implied Growth Rate 10.01%
Current Price $58.30
% of Intrinsic Value 74.06%

Starbucks Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.78 in 2014 to an estimated $2.04 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 10.01% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Starbucks Corporation revealed the company was trading above its Graham Number of $14.33. The company pays a dividend of $1 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 28.51, which was below the industry average of 28.62, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.1.

Starbucks Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.10
Graham Number $14.33
PEmg 28.51
Current Ratio 1.01
PB Ratio 14.54
Current Dividend $1.00
Dividend Yield 1.72%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $6,883,500,000
Total Current Liabilities $6,841,100,000
Long-Term Debt $4,566,500,000
Total Assets $18,518,500,000
Intangible Assets $4,921,000,000
Total Liabilities $12,766,400,000
Shares Outstanding (Diluted Average) 1,434,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.42
Sep2017 $1.97
Sep2016 $1.90
Sep2015 $1.82
Sep2014 $1.35
Sep2013 $0.01
Sep2012 $0.90
Sep2011 $0.81
Sep2010 $0.62
Sep2009 $0.26
Sep2008 $0.22
Sep2007 $0.44
Sep2006 $0.36
Sep2005 $0.31
Sep2004 $0.24
Sep2003 $0.17
Sep2002 $0.13
Sep2001 $0.12
Sep2000 $0.06
Sep1999 $0.07
Sep1998 $0.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.04
Sep2017 $1.71
Sep2016 $1.45
Sep2015 $1.14
Sep2014 $0.78
Sep2013 $0.50
Sep2012 $0.69
Sep2011 $0.55
Sep2010 $0.40
Sep2009 $0.30
Sep2008 $0.32
Sep2007 $0.34
Sep2006 $0.28
Sep2005 $0.22
Sep2004 $0.17
Sep2003 $0.13
Sep2002 $0.10

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
Starbucks Corporation Annual Valuation – 2015 $SBUX
14 Companies in the Spotlight This Week – 2/15/14
Starbucks Corp (SBUX) Annual Valuation

Other ModernGraham posts about related companies

McDonald’s Corporation Valuation – February 2018 $MCD
El Pollo LoCo Holdings Inc Valuation – Initial Coverage $LOCO
Chipotle Mexican Grill Inc Valuation – March 2017 $CMG
Sonic Corporation Valuation – Initial Coverage $SONC
Darden Restaurants Inc Valuation – February 2017 $DRI
Jack in the Box Inc Valuation – Initial Coverage $JACK
Chuy’s Holdings Inc Valuation – Initial Coverage $CHUY
Yum Brands Inc Valuation – December 2016 $YUM
McDonald’s Corp Valuation – November 2016 $MCD
Chipotle Mexican Grill Inc Valuation – August 2016 $CMG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Starbucks Corp Valuation – June 2016 $SBUX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Starbucks Corp (SBUX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Starbucks Corporation is the roaster, marketer and retailer of specialty coffee. The Company purchases and roasts coffees that it sells, along with coffee, tea and other beverages, and a range of fresh food items, through Company-operated stores. It also sells a range of coffee and tea products and licenses its trademarks through other channels, such as licensed stores, grocery and national foodservice accounts. It operates through four segment: Americas, which includes the United States, Canada, and Latin America; Europe, Middle East, and Africa (EMEA); China/Asia Pacific (CAP), and Channel Development. In addition to its Starbucks Coffee brand, it also sells goods and services under the brands, including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos. Its Americas, EMEA, and CAP segments include both Company-operated and licensed stores. The Americas and EMEA segments include certain foodservice accounts, primarily in Canada and the United Kingdom.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SBUX – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $84,914,250,023 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.89 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 451.10% Pass
6. Moderate PEmg Ratio PEmg < 20 39.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 16.56 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.89 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.23 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

SBUX value chart June 2016

EPSmg $1.43
MG Growth Estimate 15.00%
MG Value $55.06
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $20.74
MG Value based on 0% Growth $12.16
Market Implied Growth Rate 15.59%
Current Price $56.74
% of Intrinsic Value 103.06%

Starbucks Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.69 in 2012 to an estimated $1.43 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 15.59% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Starbucks Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

SBUX charts June 2016

Net Current Asset Value (NCAV) -$2.38
Graham Number $12.00
PEmg 39.68
Current Ratio 0.89
PB Ratio 16.56
Current Dividend $0.72
Dividend Yield 1.27%
Number of Consecutive Years of Dividend Growth 7

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $3,883,500,000
Total Current Liabilities $4,351,200,000
Long-Term Debt $2,447,600,000
Total Assets $12,519,400,000
Intangible Assets $2,140,200,000
Total Liabilities $7,424,800,000
Shares Outstanding (Diluted Average) 1,486,600,000

Earnings Per Share History

Next Fiscal Year Estimate $1.84
Sep2015 $1.82
Sep2014 $1.36
Sep2013 $0.01
Sep2012 $0.90
Sep2011 $0.81
Sep2010 $0.62
Sep2009 $0.26
Sep2008 $0.22
Sep2007 $0.44
Sep2006 $0.36
Sep2005 $0.31
Sep2004 $0.24
Sep2003 $0.17
Sep2002 $0.14
Sep2001 $0.12
Sep2000 $0.06
Sep1999 $0.07
Sep1998 $0.05
Sep1997 $0.04
Sep1996 $0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.43
Sep2015 $1.14
Sep2014 $0.78
Sep2013 $0.50
Sep2012 $0.69
Sep2011 $0.55
Sep2010 $0.40
Sep2009 $0.30
Sep2008 $0.32
Sep2007 $0.34
Sep2006 $0.28
Sep2005 $0.22
Sep2004 $0.17
Sep2003 $0.13
Sep2002 $0.10
Sep2001 $0.08
Sep2000 $0.06

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
Starbucks Corporation Annual Valuation – 2015 $SBUX
14 Companies in the Spotlight This Week – 2/15/14
Starbucks Corp (SBUX) Annual Valuation

Other ModernGraham posts about related companies

McDonald’s Corporation Valuation – May 2016 $MCD
Chipotle Mexican Grill Inc Stock Valuation – February 2016 $CMG
McDonald’s Corporation – November 2015 Update $MCD
Chipotle Mexican Grill Inc Stock Valuation – February 2016 $CMG
McDonald’s Corporation – November 2015 Update $MCD
Chipotle Mexican Group Inc Valuation – November 2015 Update $CMG
Darden Restaurants Inc. Analysis – September 2015 Update $DRI
Chipotle Mexican Grill Inc. Analysis – August 2015 Update $CMG
Chipolte Mexican Grill Inc. Quarterly Valuation – May 2015 $CMG
Yum! Brands Inc. Annual Valuation – 2015 $YUM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Starbucks Corporation Annual Valuation – 2015 $SBUX

500px-Starbucks_Corporation_Logo_2011.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Starbucks Corporation (SBUX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Starbucks Corporation is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 65 countries. The Company purchases and roasts high-quality coffees, along with handcrafted coffee, tea and other beverages and fresh food items, through company-operated stores. The Company sells goods and services under the brands including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos. The Company has four operating segments: Americas, which is inclusive of the US, Canada, and Latin America; Europe, Middle East, and Africa (EMEA); China/Asia Pacific (CAP) and Channel Development. The Company sells Starbucks and Seattle’s Best Coffee roasted whole bean and ground coffees, Tazo teas, Starbucks VIA Ready Brew, and other coffee and tea related products to institutional foodservice companies that service business and industry, education, healthcare, office coffee distributors, hotels, restaurants, airlines and other retailers.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $91.58
MG Value $76.35
MG Opinion Overvalued
Value Based on 3% Growth $30.47
Value Based on 0% Growth $17.86
Market Implied Growth Rate 17.54%
Net Current Asset Value (NCAV) -$2.68
PEmg 43.58
Current Ratio 1.28
PB Ratio 12.03

Balance Sheet – December 2014

Current Assets $4,546,000,000
Current Liabilities $3,558,000,000
Total Debt $2,048,000,000
Total Assets $12,351,000,000
Intangible Assets $2,140,000,000
Total Liabilities $6,576,000,000
Outstanding Shares 758,400,000

Earnings Per Share

2015 (estimate) $3.09
2014 $2.71
2013 $0.01
2012 $1.79
2011 $1.62
2010 $1.24
2009 $0.52
2008 $0.43
2007 $0.87
2006 $0.71
2005 $0.61

Earnings Per Share – ModernGraham

2015 (estimate) $2.10
2014 $1.56
2013 $1.00
2012 $1.37
2011 $1.09
2010 $0.80

Dividend History

Conclusion:

Starbucks Corporation is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, the short dividend record, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.09 in 2011 to only an estimated $2.10 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 17.54% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Starbucks Corporation (SBUX) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Starbucks Corporation (SBUX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Starbucks Corporation (SBUX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Starbucks Corp (SBUX) Annual Valuation

500px-Starbucks_Corporation_Logo_2011.svg

It sometimes seems like there is a Starbucks on every corner, and the coffee is extremely good; but those qualities alone do not mean that Starbucks is a good value for investment.  Intelligent Investors must stick to their investment techniques and look primarily at the fundamentals and actual results the company achieves.  A company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Starbucks fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Starbucks Corporation is a roaster, marketer and retailer of coffee operating in 60 countries. The Company purchases and roasts coffees that it sells, along with handcrafted coffee, tea and other beverages and a variety of fresh food items, through Company-operated stores. It also sells a variety of coffee and tea products and licenses its trademarks through other channels, such as licensed stores and national foodservice accounts. As of September 30, 2012, it operated 9,405 Company-operated stores and 8,661 licensed stores. It has four segments: Americas; Europe, Middle East and Africa (EMEA); China/Asia Pacific (CAP), and Channel Development. In addition to its flagship Starbucks brand, the Company’s portfolio also includes Tazo Tea, Seattle’s Best Coffee, Starbucks VIA Ready Brew, Starbucks Refreshers beverages and the Verismo System by Starbucks. In February 2013, Tata Coffee Ltd and the Company inaugurated a roasting and packaging plant in Karnataka.

SBUX Chart

SBUX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $74.04
MG Value $81.24
MG Opinion Fairly Valued
Value Based on 3% Growth $30.60
Value Based on 0% Growth $17.94
Market Implied Growth Rate 13.30%
Net Current Asset Value (NCAV) -$2.13
PEmg 35.09
Current Ratio 1.27
PB Ratio 11.46

Balance Sheet – 12/29/2013

Current Assets $3,759,400,000
Current Liabilities $2,953,000,000
Total Debt $2,047,900,000
Total Assets $10,255,200,000
Intangible Assets $1,138,700,000
Total Liabilities $5,367,800,000
Outstanding Shares 756,500,000

Earnings Per Share

2014 (estimate) $2.60
2013 $2.20
2012 $1.79
2011 $1.62
2010 $1.24
2009 $0.52
2008 $0.43
2007 $0.87
2006 $0.73
2005 $0.61
2004 $0.48

Earnings Per Share – ModernGraham 

2014 (estimate) $2.11
2013 $1.73
2012 $1.37
2011 $1.09
2010 $0.80
2009 $0.60

Dividend History

SBUX Dividend Chart

SBUX Dividend data by YCharts

Conclusion:

Starbucks is a very reputable company, but it does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low, it does not have a long enough dividend history, and it currently trades at high PEmg and PB ratios.  For the Enterprising Investor, the company’s debt is too high relative to its current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should research other opportunities such as through a review of companies that pass the ModernGraham requirements.  From a valuation perspective, the company has seen solid growth, having grown its EPSmg (normalized earnings) from $0.60 in 2009 to an estimated $2.11 for 2014.  This level of growth is in line with the market’s current implied estimate of 13.30% growth, and the ModernGraham valuation model returns an intrinsic value within the margin of safety.  Therefore, the company appears to be fairly valued at the present time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Starbucks Corp (SBUX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Starbucks Corp (SBUX) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the company website; this article is not affiliated with the company in any manner.

McDonald’s Corp Valuation – April 2019 #MCD

Company Profile (excerpt from Reuters): McDonald’s Corporation (McDonald’s), incorporated on December 21, 1964, operates and franchises McDonald’s restaurants. The Company’s restaurants serve a locally relevant menu of food and drinks sold at various price points in over 100 countries. The Company’s segments include U.S., International Lead Markets, High Growth Markets and Foundational Markets and Corporate. McDonald’s franchised restaurants are owned and operated under various structures, including conventional franchise, developmental license or affiliate. The Company is primarily a franchisor. Under a conventional franchise arrangement, the Company owns the land and building or secures a long-term lease for the restaurant location and the franchisee pays for equipment, signs, seating and decor.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MCD – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $145,486,766,371 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.36 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 43.92% Pass
6. Moderate PEmg Ratio PEmg < 20 27.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -23.60 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.36 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 28.78 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.99
MG Growth Estimate 5.72%
MG Value $139.32
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $101.36
MG Value based on 0% Growth $59.42
Market Implied Growth Rate 9.35%
Current Price $190.08
% of Intrinsic Value 136.43%

Mcdonald’s Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.06 in 2015 to an estimated $6.99 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.35% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Mcdonald’s Corp revealed the company was trading above its Graham Number of $0. The company pays a dividend of $4.19 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.19, which was below the industry average of 34.9, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.07.

Mcdonald’s Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$45.07
Graham Number $0.00
PEmg 27.19
Current Ratio 1.36
PB Ratio -23.60
Current Dividend $4.19
Dividend Yield 2.20%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,053,200,000
Total Current Liabilities $2,973,500,000
Long-Term Debt $31,075,300,000
Total Assets $32,811,200,000
Intangible Assets $2,331,500,000
Total Liabilities $39,069,600,000
Shares Outstanding (Diluted Average) 776,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.98
Dec2018 $7.54
Dec2017 $6.37
Dec2016 $5.44
Dec2015 $4.80
Dec2014 $4.82
Dec2013 $5.55
Dec2012 $5.36
Dec2011 $5.27
Dec2010 $4.58
Dec2009 $4.11
Dec2008 $3.76
Dec2007 $1.98
Dec2006 $2.83
Dec2005 $2.04
Dec2004 $1.79
Dec2003 $1.15
Dec2002 $0.70
Dec2001 $1.25
Dec2000 $1.46
Dec1999 $1.39

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.99
Dec2018 $6.26
Dec2017 $5.55
Dec2016 $5.15
Dec2015 $5.06
Dec2014 $5.17
Dec2013 $5.22
Dec2012 $4.91
Dec2011 $4.43
Dec2010 $3.83
Dec2009 $3.28
Dec2008 $2.74
Dec2007 $2.14
Dec2006 $2.05
Dec2005 $1.56
Dec2004 $1.31
Dec2003 $1.11

Recommended Reading:

Other ModernGraham posts about the company

McDonald’s Corp Valuation – November 2018 $MCD
McDonald’s Corporation Valuation – February 2018 $MCD
5 Overvalued Dow Components – December 2016
McDonald’s Corp Valuation – November 2016 $MCD
5 Overvalued Dow Components – July 2016

Other ModernGraham posts about related companies

Chipotle Mexican Grill Inc Valuation – March 2019 #CMG
Darden Restaurants Inc Valuation – March 2019 #DRI
Yum Brands Inc Valuation – February 2019 $YUM
Starbucks Corporation Valuation – January 2019 $SBUX
McDonald’s Corp Valuation – November 2018 $MCD
Sonic Corp Valuation – August 2018 $SONC
Jack in the Box Inc Valuation – July 2018 $JACK
Chuy’s Holdings Inc Valuation – July 2018 $CHUY
Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Chipotle Mexican Grill Inc Valuation – March 2019 #CMG

Company Profile (excerpt from Reuters): Chipotle Mexican Grill, Inc. (Chipotle), incorporated on January 30, 1998, together with its subsidiaries, operates Chipotle Mexican Grill restaurants. The Company’s Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. As of December 31, 2016, the Company managed its operations and restaurants based on 11 regions. As of December 31, 2016, the Company operated 2,198 Chipotle restaurants throughout the United States, as well as 29 international Chipotle restaurants, and it also had 23 restaurants in operation in other non-Chipotle concepts. As of December 31, 2016, 29 of its restaurants were located outside of the United States, with 17 in Canada, six in the United Kingdom, five in France and one in Frankfurt, Germany. The Company sells gift cards, which do not have an expiration date.

CMG Chart

CMG data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CMG – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,600,677,500 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.81 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 11.30% Fail
6. Moderate PEmg Ratio PEmg < 20 87.26 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.05 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.81 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.71
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $111.83
MG Value based on 0% Growth $65.56
Market Implied Growth Rate 39.38%
Current Price $672.98
% of Intrinsic Value N/A

Chipotle Mexican Grill, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $12.51 in 2015 to an estimated $7.71 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 39.38% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chipotle Mexican Grill, Inc. revealed the company was trading above its Graham Number of $113.79. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 87.26, which was above the industry average of 33.53. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.34.

Chipotle Mexican Grill, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.34
Graham Number $113.79
PEmg 87.26
Current Ratio 1.81
PB Ratio 13.05
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $814,794,000
Total Current Liabilities $449,990,000
Long-Term Debt $0
Total Assets $2,265,518,000
Intangible Assets $21,939,000
Total Liabilities $824,179,000
Shares Outstanding (Diluted Average) 27,947,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.06
Dec2018 $6.31
Dec2017 $6.17
Dec2016 $0.77
Dec2015 $15.10
Dec2014 $14.13
Dec2013 $10.47
Dec2012 $8.75
Dec2011 $6.76
Dec2010 $5.64
Dec2009 $3.95
Dec2008 $2.36
Dec2007 $2.13
Dec2006 $1.28
Dec2005 $1.43
Dec2004 $0.24
Dec2003 -$0.34
Dec2002 -$0.87
Dec2001 -$1.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.71
Dec2018 $6.86
Dec2017 $7.86
Dec2016 $9.09
Dec2015 $12.51
Dec2014 $10.53
Dec2013 $8.19
Dec2012 $6.53
Dec2011 $5.00
Dec2010 $3.77
Dec2009 $2.64
Dec2008 $1.82
Dec2007 $1.35
Dec2006 $0.75
Dec2005 $0.26
Dec2004 -$0.38
Dec2003 -$0.64

Recommended Reading:

Other ModernGraham posts about the company

Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Chipotle Mexican Grill Inc Valuation – March 2017 $CMG
Chipotle Mexican Grill Inc Valuation – August 2016 $CMG
Chipotle Mexican Grill Inc Stock Valuation – February 2016 $CMG
Chipotle Mexican Group Inc Valuation – November 2015 Update $CMG

Other ModernGraham posts about related companies

Darden Restaurants Inc Valuation – March 2019 #DRI
Yum Brands Inc Valuation – February 2019 $YUM
Starbucks Corporation Valuation – January 2019 $SBUX
McDonald’s Corp Valuation – November 2018 $MCD
Sonic Corp Valuation – August 2018 $SONC
Jack in the Box Inc Valuation – July 2018 $JACK
Chuy’s Holdings Inc Valuation – July 2018 $CHUY
Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI
Yum Brands Inc Valuation – April 2018 $YUM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Darden Restaurants Inc Valuation – March 2019 #DRI

Company Profile (excerpt from Reuters): Darden Restaurants, Inc., incorporated on March 30, 1995, is a full-service restaurant company. The Company owned and operated 1,536 restaurants through its subsidiaries in the United States and Canada, as of May 29, 2016. The Company’s segments include Olive Garden, LongHorn Steakhouse, Fine Dining (which includes The Capital Grille, and Eddie V’s Prime Seafood and Wildfish Seafood Grille (Eddie V’s)) and Other Business (which includes Yard House, Seasons 52, Bahama Breeze, consumer-packaged goods and franchise revenues). As of May 29, 2016, the Company also had 50 restaurants operated by independent third parties pursuant to area development and franchise agreements.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DRI – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,739,140,896 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.41 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 44.08% Pass
6. Moderate PEmg Ratio PEmg < 20 23.99 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.22 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.41 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -1.12 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.64
MG Growth Estimate 3.67%
MG Value $73.44
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $67.22
MG Value based on 0% Growth $39.41
Market Implied Growth Rate 7.75%
Current Price $111.24
% of Intrinsic Value 151.48%

Darden Restaurants, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.72 in 2015 to an estimated $4.64 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.75% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Darden Restaurants, Inc. revealed the company was trading above its Graham Number of $47.27. The company pays a dividend of $2.52 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.99, which was below the industry average of 33.53, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-21.76.

Darden Restaurants, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$21.76
Graham Number $47.27
PEmg 23.99
Current Ratio 0.41
PB Ratio 6.22
Current Dividend $2.52
Dividend Yield 2.27%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $561,200,000
Total Current Liabilities $1,385,300,000
Long-Term Debt $927,100,000
Total Assets $5,549,200,000
Intangible Assets $2,134,500,000
Total Liabilities $3,298,900,000
Shares Outstanding (Diluted Average) 125,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.59
May2018 $4.73
May2017 $3.80
May2016 $2.90
May2015 $5.47
May2014 $2.15
May2013 $3.13
May2012 $3.57
May2011 $3.39
May2010 $2.84
May2009 $2.65
May2008 $2.60
May2007 $1.35
May2006 $2.16
May2005 $1.78
May2004 $1.34
May2003 $1.27
May2002 $1.30
May2001 $1.06
May2000 $0.89
May1999 $0.66

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.64
May2018 $4.04
May2017 $3.63
May2016 $3.51
May2015 $3.72
May2014 $2.91
May2013 $3.23
May2012 $3.19
May2011 $2.85
May2010 $2.50
May2009 $2.25
May2008 $1.99
May2007 $1.65
May2006 $1.72
May2005 $1.45
May2004 $1.25
May2003 $1.15

Recommended Reading:

Other ModernGraham posts about the company

Darden Restaurants Inc Valuation – May 2018 $DRI
Darden Restaurants Inc Valuation – February 2017 $DRI
Darden Restaurants Inc. Analysis – September 2015 Update $DRI
5 Speculative and Overvalued Companies to Avoid – October 2014
17 Companies in the Spotlight This Week – 9/27/2014

Other ModernGraham posts about related companies

Yum Brands Inc Valuation – February 2019 $YUM
Starbucks Corporation Valuation – January 2019 $SBUX
McDonald’s Corp Valuation – November 2018 $MCD
Sonic Corp Valuation – August 2018 $SONC
Jack in the Box Inc Valuation – July 2018 $JACK
Chuy’s Holdings Inc Valuation – July 2018 $CHUY
Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI
Yum Brands Inc Valuation – April 2018 $YUM
Starbucks Corporation Valuation – March 2018 $SBUX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Yum Brands Inc Valuation – February 2019 $YUM

Company Profile (excerpt from Reuters): YUM! Brands, Inc., incorporated on May 30, 1997, is engaged in restaurant business. As of December 31, 2016, the Company operated or franchised over 43,500 restaurants in more than 135 countries and territories operating under the KFC, Pizza Hut or Taco Bell (collectively the Concepts) brands. The Company operates through three segments: The KFC Division, which includes the operations of the KFC concept around the world; The Pizza Hut Division, which includes the operations of the Pizza Hut concept around the world, and The Taco Bell Division, which includes the operations of the Taco Bell concept around the world. Through its KFC, Pizza Hut and Taco Bell Concepts, the Company develops, operates or franchises a system of restaurants, which prepare, package and sell a menu of priced food items.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of YUM – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $29,581,245,821 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.93 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 40.94% Pass
6. Moderate PEmg Ratio PEmg < 20 24.18 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -3.82 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.93 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -103.73 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.92
MG Growth Estimate 6.84%
MG Value $86.92
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $56.81
MG Value based on 0% Growth $33.30
Market Implied Growth Rate 7.84%
Current Price $94.72
% of Intrinsic Value 108.98%

Yum! Brands, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.69 in 2015 to an estimated $3.92 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 7.84% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Yum! Brands, Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.44 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 24.18, which was below the industry average of 31.73, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-33.9.

Yum! Brands, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$33.90
Graham Number $0.00
PEmg 24.18
Current Ratio 0.93
PB Ratio -3.82
Current Dividend $1.44
Dividend Yield 1.52%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,207,000,000
Total Current Liabilities $1,301,000,000
Long-Term Debt $9,751,000,000
Total Assets $4,130,000,000
Intangible Assets $767,000,000
Total Liabilities $12,056,000,000
Shares Outstanding (Diluted Average) 320,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.52
Dec2018 $4.69
Dec2017 $3.77
Dec2016 $4.10
Dec2015 $2.90
Dec2014 $2.32
Dec2013 $2.36
Dec2012 $3.38
Dec2011 $2.74
Dec2010 $2.38
Dec2009 $2.22
Dec2008 $1.96
Dec2007 $1.68
Dec2006 $1.46
Dec2005 $1.28
Dec2004 $1.21
Dec2003 $1.01
Dec2002 $0.94
Dec2001 $0.81
Dec2000 $0.69
Dec1999 $0.98

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.92
Dec2018 $3.93
Dec2017 $3.40
Dec2016 $3.14
Dec2015 $2.69
Dec2014 $2.60
Dec2013 $2.70
Dec2012 $2.76
Dec2011 $2.37
Dec2010 $2.10
Dec2009 $1.88
Dec2008 $1.64
Dec2007 $1.43
Dec2006 $1.27
Dec2005 $1.13
Dec2004 $1.01
Dec2003 $0.91

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Other ModernGraham posts about related companies

Starbucks Corporation Valuation – January 2019 $SBUX
McDonald’s Corp Valuation – November 2018 $MCD
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Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI
Yum Brands Inc Valuation – April 2018 $YUM
Starbucks Corporation Valuation – March 2018 $SBUX
McDonald’s Corporation Valuation – February 2018 $MCD

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

McDonald’s Corp Valuation – November 2018 $MCD

Company Profile (excerpt from Reuters): McDonald’s Corporation (McDonald’s), incorporated on December 21, 1964, operates and franchises McDonald’s restaurants. The Company’s restaurants serve a locally relevant menu of food and drinks sold at various price points in over 100 countries. The Company’s segments include U.S., International Lead Markets, High Growth Markets and Foundational Markets and Corporate. McDonald’s franchised restaurants are owned and operated under various structures, including conventional franchise, developmental license or affiliate. The Company is primarily a franchisor. Under a conventional franchise arrangement, the Company owns the land and building or secures a long-term lease for the restaurant location and the franchisee pays for equipment, signs, seating and decor.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MCD – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $145,532,372,247 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.53 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 38.54% Pass
6. Moderate PEmg Ratio PEmg < 20 29.98 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -21.53 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.53 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 16.56 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.26
MG Growth Estimate 3.17%
MG Value $92.85
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $90.74
MG Value based on 0% Growth $53.19
Market Implied Growth Rate 10.74%
Current Price $187.59
% of Intrinsic Value 202.04%

Mcdonald’s Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.17 in 2014 to an estimated $6.26 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Mcdonald’s Corp revealed the company was trading above its Graham Number of $0. The company pays a dividend of $3.83 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 29.98, which was below the industry average of 31.54, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.27.

Mcdonald’s Corp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$45.27
Graham Number $0.00
PEmg 29.98
Current Ratio 1.53
PB Ratio -21.53
Current Dividend $3.83
Dividend Yield 2.04%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $5,553,100,000
Total Current Liabilities $3,626,700,000
Long-Term Debt $31,895,200,000
Total Assets $34,053,700,000
Intangible Assets $2,345,000,000
Total Liabilities $40,846,300,000
Shares Outstanding (Diluted Average) 779,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.53
Dec2017 $6.37
Dec2016 $5.44
Dec2015 $4.80
Dec2014 $4.82
Dec2013 $5.55
Dec2012 $5.36
Dec2011 $5.27
Dec2010 $4.58
Dec2009 $4.11
Dec2008 $3.76
Dec2007 $1.98
Dec2006 $2.83
Dec2005 $2.04
Dec2004 $1.79
Dec2003 $1.15
Dec2002 $0.70
Dec2001 $1.25
Dec2000 $1.46
Dec1999 $1.39
Dec1998 $1.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.26
Dec2017 $5.55
Dec2016 $5.15
Dec2015 $5.06
Dec2014 $5.17
Dec2013 $5.22
Dec2012 $4.91
Dec2011 $4.43
Dec2010 $3.83
Dec2009 $3.28
Dec2008 $2.74
Dec2007 $2.14
Dec2006 $2.05
Dec2005 $1.56
Dec2004 $1.31
Dec2003 $1.11
Dec2002 $1.12

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Other ModernGraham posts about the company

McDonald’s Corporation Valuation – February 2018 $MCD
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McDonald’s Corp Valuation – November 2016 $MCD
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Other ModernGraham posts about related companies

Sonic Corp Valuation – August 2018 $SONC
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Chuy’s Holdings Inc Valuation – July 2018 $CHUY
Chipotle Mexican Grill Inc Valuation – June 2018 $CMG
Darden Restaurants Inc Valuation – May 2018 $DRI
Yum Brands Inc Valuation – April 2018 $YUM
Starbucks Corporation Valuation – March 2018 $SBUX
McDonald’s Corporation Valuation – February 2018 $MCD
El Pollo LoCo Holdings Inc Valuation – Initial Coverage $LOCO
Chipotle Mexican Grill Inc Valuation – March 2017 $CMG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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