In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

Starbucks Corp., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 11.61%
0¹	FCFF₀	4,075,665
1	FCFF₁	4,920,908	= 4,075,665 × (1 + 20.74%)	4,408,859
2	FCFF₂	5,781,542	= 4,920,908 × (1 + 17.49%)	4,640,936
3	FCFF₃	6,604,826	= 5,781,542 × (1 + 14.24%)	4,750,118
4	FCFF₄	7,330,726	= 6,604,826 × (1 + 10.99%)	4,723,576
5	FCFF₅	7,898,198	= 7,330,726 × (1 + 7.74%)	4,559,665
5	Terminal value (TV₅)	219,711,087	= 7,898,198 × (1 + 7.74%) ÷ (11.61% – 7.74%)	126,840,198
Intrinsic value of Starbucks Corp. capital				149,923,352
Less: Debt (fair value)				13,459,700
Intrinsic value of Starbucks Corp. common stock				136,463,652

Intrinsic value of Starbucks Corp. common stock (per share)				$120.53
Current share price				$88.25

Based on: 10-K (reporting date: 2023-10-01).

¹ See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Starbucks Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	99,916,650	0.88	12.80%
Debt (fair value)	13,459,700	0.12	2.80%	= 3.55% × (1 – 21.12%)

Based on: 10-K (reporting date: 2023-10-01).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,132,200,000 × $88.25
= $99,916,650,000.00

Debt (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (23.60% + 22.40% + 21.60% + 20.60% + 19.50% + 19.00%) ÷ 6
= 21.12%

WACC = 11.61%

FCFF growth rate (g) implied by PRAT model

Starbucks Corp., PRAT model

	Average	Oct 1, 2023	Oct 2, 2022	Oct 3, 2021	Sep 27, 2020	Sep 29, 2019	Sep 30, 2018
Selected Financial Data (US$ in thousands)
Interest expense		550,100)	482,900)	469,800)	437,000)	331,000)	170,300)
Net earnings attributable to Starbucks		4,124,500)	3,281,600)	4,199,300)	928,300)	3,599,200)	4,518,300)

Effective income tax rate (EITR)¹		23.60%	22.40%	21.60%	20.60%	19.50%	19.00%

Interest expense, after tax²		420,276)	374,730)	368,323)	346,978)	266,455)	137,943)
Add: Cash dividends declared		2,474,600)	2,293,500)	2,697,200)	1,436,600)	1,801,600)	1,760,500)
Interest expense (after tax) and dividends		2,894,876)	2,668,230)	3,065,523)	1,783,578)	2,068,055)	1,898,443)

EBIT(1 – EITR)³		4,544,776)	3,656,330)	4,567,623)	1,275,278)	3,865,655)	4,656,243)

Current portion of long-term debt		1,818,600)	1,749,000)	998,900)	1,249,900)	—)	349,900)
Long-term debt, excluding current portion		13,547,600)	13,119,900)	13,616,900)	14,659,600)	11,167,000)	9,090,200)
Shareholders’ equity (deficit)		(7,994,800)	(8,706,600)	(5,321,200)	(7,805,100)	(6,232,200)	1,169,500)
Total capital		7,371,400)	6,162,300)	9,294,600)	8,104,400)	4,934,800)	10,609,600)
Financial Ratios
Retention rate (RR)⁴		0.36	0.27	0.33	-0.40	0.47	0.59
Return on invested capital (ROIC)⁵		61.65%	59.33%	49.14%	15.74%	78.33%	43.89%
Averages
RR	0.40
ROIC	51.35%

FCFF growth rate (g)⁶	20.74%

Based on: 10-K (reporting date: 2023-10-01), 10-K (reporting date: 2022-10-02), 10-K (reporting date: 2021-10-03), 10-K (reporting date: 2020-09-27), 10-K (reporting date: 2019-09-29), 10-K (reporting date: 2018-09-30).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 550,100 × (1 – 23.60%)
= 420,276

³ EBIT(1 – EITR) = Net earnings attributable to Starbucks + Interest expense, after tax
= 4,124,500 + 420,276
= 4,544,776

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,544,776 – 2,894,876] ÷ 4,544,776
= 0.36

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,544,776 ÷ 7,371,400
= 61.65%

⁶ g = RR × ROIC
= 0.40 × 51.35%
= 20.74%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (113,376,350 × 11.61% – 4,075,665) ÷ (113,376,350 + 4,075,665)
= 7.74%

where:

Total capital, fair value₀ = current fair value of Starbucks Corp. debt and equity (US$ in thousands)
FCFF₀ = the last year Starbucks Corp. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Starbucks Corp. capital

FCFF growth rate (g) forecast

Starbucks Corp., H-model

Year	Value	g_t
1	g₁	20.74%
2	g₂	17.49%
3	g₃	14.24%
4	g₄	10.99%
5 and thereafter	g₅	7.74%

where:
g₁ is implied by PRAT model
g₅ is implied by single-stage model
g₂, g₃ and g₄ are calculated using linear interpoltion between g₁ and g₅

Calculations

g₂ = g₁ + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 20.74% + (7.74% – 20.74%) × (2 – 1) ÷ (5 – 1)
= 17.49%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 20.74% + (7.74% – 20.74%) × (3 – 1) ÷ (5 – 1)
= 14.24%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 20.74% + (7.74% – 20.74%) × (4 – 1) ÷ (5 – 1)
= 10.99%

Starbucks Corp. (NASDAQ:SBUX)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FCFF growth rate (g) implied by single-stage model

FCFF growth rate (g) forecast