Microsoft Excel LibreOffice Calc

Starbucks Corp. (NASDAQ:SBUX)


Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Starbucks Corp., dividends per share (DPS) forecast

US$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 7.16%
0 DPS01 1.44
1 DPS1 1.81 = 1.44 × (1 + 25.98%) 1.69
2 DPS2 2.19 = 1.81 × (1 + 20.79%) 1.91
3 DPS3 2.53 = 2.19 × (1 + 15.60%) 2.06
4 DPS4 2.80 = 2.53 × (1 + 10.40%) 2.12
5 DPS5 2.94 = 2.80 × (1 + 5.21%) 2.08
5 Terminal value (TV5) 159.35 = 2.94 × (1 + 5.21%) ÷ (7.16%5.21%) 112.79
Intrinsic value of Starbucks Corp.’s common stock (per share) $122.65
Current share price $77.99

Based on: 10-K (filing date: 2019-11-15).

1 DPS0 = Sum of the last year dividends per share of Starbucks Corp.’s common stock. 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.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 1.26%
Expected rate of return on market portfolio2 E(RM) 11.86%
Systematic risk of Starbucks Corp.’s common stock βSBUX 0.56
 
Required rate of return on Starbucks Corp.’s common stock3 rSBUX 7.16%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rSBUX = RF + βSBUX [E(RM) – RF]
= 1.26% + 0.56 [11.86%1.26%]
= 7.16%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Starbucks Corp., PRAT model

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Average Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
Selected Financial Data (US$ in thousands)
Cash dividends declared 1,801,600  1,760,500  1,515,900  1,246,200  1,016,200  827,000 
Net earnings attributable to Starbucks 3,599,200  4,518,300  2,884,700  2,817,700  2,757,400  2,068,100 
Net revenues 26,508,600  24,719,500  22,386,800  21,315,900  19,162,700  16,447,800 
Total assets 19,219,600  24,156,400  14,365,600  14,329,500  12,446,100  10,752,900 
Shareholders’ equity (deficit) (6,232,200) 1,169,500  5,450,100  5,884,000  5,818,000  5,272,000 
Financial Ratios
Retention rate1 0.50 0.61 0.47 0.56 0.63 0.60
Profit margin2 13.58% 18.28% 12.89% 13.22% 14.39% 12.57%
Asset turnover3 1.38 1.02 1.56 1.49 1.54 1.53
Financial leverage4 20.66 2.64 2.44 2.14 2.04
Averages
Retention rate 0.56
Profit margin 13.33%
Asset turnover 1.50
Financial leverage 2.31
 
Dividend growth rate (g)5 25.98%

Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).

2019 Calculations

1 Retention rate = (Net earnings attributable to Starbucks – Cash dividends declared) ÷ Net earnings attributable to Starbucks
= (3,599,2001,801,600) ÷ 3,599,200 = 0.50

2 Profit margin = 100 × Net earnings attributable to Starbucks ÷ Net revenues
= 100 × 3,599,200 ÷ 26,508,600 = 13.58%

3 Asset turnover = Net revenues ÷ Total assets
= 26,508,600 ÷ 19,219,600 = 1.38

4 Financial leverage = Total assets ÷ Shareholders’ equity (deficit)
= 19,219,600 ÷ -6,232,200 =

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.56 × 13.33% × 1.50 × 2.31 = 25.98%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($77.99 × 7.16%$1.44) ÷ ($77.99 + $1.44) = 5.21%

where:
P0 = current price of share of Starbucks Corp.’s common stock
D0 = the last year dividends per share of Starbucks Corp.’s common stock
r = required rate of return on Starbucks Corp.’s common stock


Dividend growth rate (g) forecast

Starbucks Corp., H-model

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Year Value gt
1 g1 25.98%
2 g2 20.79%
3 g3 15.60%
4 g4 10.40%
5 and thereafter g5 5.21%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 25.98% + (5.21%25.98%) × (2 – 1) ÷ (5 – 1) = 20.79%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 25.98% + (5.21%25.98%) × (3 – 1) ÷ (5 – 1) = 15.60%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 25.98% + (5.21%25.98%) × (4 – 1) ÷ (5 – 1) = 10.40%