Stock Analysis on Net

Starbucks Corp. (NASDAQ:SBUX)

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

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

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

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.25%
01 FCFF0 4,911,962
1 FCFF1 5,888,688 = 4,911,962 × (1 + 19.88%) 5,340,979
2 FCFF2 6,851,566 = 5,888,688 × (1 + 16.35%) 5,636,305
3 FCFF3 7,729,802 = 6,851,566 × (1 + 12.82%) 5,767,336
4 FCFF4 8,447,491 = 7,729,802 × (1 + 9.28%) 5,716,589
5 FCFF5 8,933,341 = 8,447,491 × (1 + 5.75%) 5,483,091
5 Terminal value (TV5) 209,776,023 = 8,933,341 × (1 + 5.75%) ÷ (10.25%5.75%) 128,755,975
Intrinsic value of Starbucks Corp. capital 156,700,275
Less: Debt (fair value) 16,014,100
Intrinsic value of Starbucks Corp. common stock 140,686,175
 
Intrinsic value of Starbucks Corp. common stock (per share) $122.61
Current share price $86.57

Based on: 10-K (reporting date: 2021-10-03).

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.


Weighted Average Cost of Capital (WACC)

Starbucks Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 99,330,418 0.86 11.51%
Debt (fair value) 16,014,100 0.14 2.49% = 3.29% × (1 – 24.47%)

Based on: 10-K (reporting date: 2021-10-03).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,147,400,000 × $86.57
= $99,330,418,000.00

   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
= (21.60% + 20.60% + 19.50% + 19.00% + 33.20% + 32.90%) ÷ 6
= 24.47%

WACC = 10.25%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Starbucks Corp., PRAT model

Microsoft Excel
Average Oct 3, 2021 Sep 27, 2020 Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016
Selected Financial Data (US$ in thousands)
Interest expense 469,800  437,000  331,000  170,300  92,500  81,300 
Net earnings attributable to Starbucks 4,199,300  928,300  3,599,200  4,518,300  2,884,700  2,817,700 
 
Effective income tax rate (EITR)1 21.60% 20.60% 19.50% 19.00% 33.20% 32.90%
 
Interest expense, after tax2 368,323  346,978  266,455  137,943  61,790  54,552 
Add: Cash dividends declared 2,697,200  1,436,600  1,801,600  1,760,500  1,515,900  1,246,200 
Interest expense (after tax) and dividends 3,065,523  1,783,578  2,068,055  1,898,443  1,577,690  1,300,752 
 
EBIT(1 – EITR)3 4,567,623  1,275,278  3,865,655  4,656,243  2,946,490  2,872,252 
 
Current portion of long-term debt 998,900  1,249,900  —  349,900  —  400,000 
Long-term debt, excluding current portion 13,616,900  14,659,600  11,167,000  9,090,200  3,932,600  3,202,200 
Shareholders’ equity (deficit) (5,321,200) (7,805,100) (6,232,200) 1,169,500  5,450,100  5,884,000 
Total capital 9,294,600  8,104,400  4,934,800  10,609,600  9,382,700  9,486,200 
Financial Ratios
Retention rate (RR)4 0.33 -0.40 0.47 0.59 0.46 0.55
Return on invested capital (ROIC)5 49.14% 15.74% 78.33% 43.89% 31.40% 30.28%
Averages
RR 0.48
ROIC 41.46%
 
FCFF growth rate (g)6 19.88%

Based on: 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), 10-K (reporting date: 2017-10-01), 10-K (reporting date: 2016-10-02).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 469,800 × (1 – 21.60%)
= 368,323

3 EBIT(1 – EITR) = Net earnings attributable to Starbucks + Interest expense, after tax
= 4,199,300 + 368,323
= 4,567,623

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,567,6233,065,523] ÷ 4,567,623
= 0.33

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,567,623 ÷ 9,294,600
= 49.14%

6 g = RR × ROIC
= 0.48 × 41.46%
= 19.88%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (115,344,518 × 10.25%4,911,962) ÷ (115,344,518 + 4,911,962)
= 5.75%

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

Microsoft Excel
Year Value gt
1 g1 19.88%
2 g2 16.35%
3 g3 12.82%
4 g4 9.28%
5 and thereafter g5 5.75%

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)
= 19.88% + (5.75%19.88%) × (2 – 1) ÷ (5 – 1)
= 16.35%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 19.88% + (5.75%19.88%) × (3 – 1) ÷ (5 – 1)
= 12.82%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 19.88% + (5.75%19.88%) × (4 – 1) ÷ (5 – 1)
= 9.28%