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

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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

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Jack in the Box Inc Valuation – July 2018 $JACK
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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
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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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