Restaurants Stocks

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.

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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

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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

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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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