Stock Analysis on Net

Starbucks Corp. (NASDAQ:SBUX)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Starbucks Corp., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 12.94%
01 FCFE0 4,033,700
1 FCFE1 8,726,967 = 4,033,700 × (1 + 116.35%) 7,727,382
2 FCFE2 16,512,718 = 8,726,967 × (1 + 89.21%) 12,946,628
3 FCFE3 26,763,535 = 16,512,718 × (1 + 62.08%) 18,580,209
4 FCFE4 36,115,185 = 26,763,535 × (1 + 34.94%) 22,200,666
5 FCFE5 38,934,050 = 36,115,185 × (1 + 7.81%) 21,192,139
5 Terminal value (TV5) 818,119,281 = 38,934,050 × (1 + 7.81%) ÷ (12.94%7.81%) 445,309,378
Intrinsic value of Starbucks Corp. common stock 527,956,402
 
Intrinsic value of Starbucks Corp. common stock (per share) $466.10
Current share price $74.83

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

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 4.46%
Expected rate of return on market portfolio2 E(RM) 13.71%
Systematic risk of Starbucks Corp. common stock βSBUX 0.92
 
Required rate of return on Starbucks Corp. common stock3 rSBUX 12.94%

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]
= 4.46% + 0.92 [13.71%4.46%]
= 12.94%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Starbucks Corp., PRAT model

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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)
Cash dividends declared 2,474,600 2,293,500 2,697,200 1,436,600 1,801,600 1,760,500
Net earnings attributable to Starbucks 4,124,500 3,281,600 4,199,300 928,300 3,599,200 4,518,300
Net revenues 35,975,600 32,250,300 29,060,600 23,518,000 26,508,600 24,719,500
Total assets 29,445,500 27,978,400 31,392,600 29,374,500 19,219,600 24,156,400
Shareholders’ equity (deficit) (7,994,800) (8,706,600) (5,321,200) (7,805,100) (6,232,200) 1,169,500
Financial Ratios
Retention rate1 0.40 0.30 0.36 -0.55 0.50 0.61
Profit margin2 11.46% 10.18% 14.45% 3.95% 13.58% 18.28%
Asset turnover3 1.22 1.15 0.93 0.80 1.38 1.02
Financial leverage4 20.66
Averages
Retention rate 0.43
Profit margin 11.98%
Asset turnover 1.08
Financial leverage 20.66
 
FCFE growth rate (g)5 116.35%

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).

2023 Calculations

1 Retention rate = (Net earnings attributable to Starbucks – Cash dividends declared) ÷ Net earnings attributable to Starbucks
= (4,124,5002,474,600) ÷ 4,124,500
= 0.40

2 Profit margin = 100 × Net earnings attributable to Starbucks ÷ Net revenues
= 100 × 4,124,500 ÷ 35,975,600
= 11.46%

3 Asset turnover = Net revenues ÷ Total assets
= 35,975,600 ÷ 29,445,500
= 1.22

4 Financial leverage = Total assets ÷ Shareholders’ equity (deficit)
= 29,445,500 ÷ -7,994,800
=

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.43 × 11.98% × 1.08 × 20.66
= 116.35%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (84,759,941 × 12.94%4,033,700) ÷ (84,759,941 + 4,033,700)
= 7.81%

where:
Equity market value0 = current market value of Starbucks Corp. common stock (US$ in thousands)
FCFE0 = the last year Starbucks Corp. free cash flow to equity (US$ in thousands)
r = required rate of return on Starbucks Corp. common stock


FCFE growth rate (g) forecast

Starbucks Corp., H-model

Microsoft Excel
Year Value gt
1 g1 116.35%
2 g2 89.21%
3 g3 62.08%
4 g4 34.94%
5 and thereafter g5 7.81%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 116.35% + (7.81%116.35%) × (2 – 1) ÷ (5 – 1)
= 89.21%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 116.35% + (7.81%116.35%) × (3 – 1) ÷ (5 – 1)
= 62.08%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 116.35% + (7.81%116.35%) × (4 – 1) ÷ (5 – 1)
= 34.94%