DCF Studio

    SBUX · NMS · Consumer Cyclical

    Starbucks Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 28.38

    Market price

    USD 95.83

    Implied upside

    -70.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 6.5% of revenue against depreciation of 4.5%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 24.7x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 28.38-70.4%
    Exit multiple
    USD 84.16-12.2%
    Market price
    USD 95.83

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 39.0bnUSD 40.9bnUSD 42.9bnUSD 45.0bnUSD 47.1bn+4.9%
    EBITUSD 5.1bnUSD 5.4bnUSD 5.7bnUSD 5.9bnUSD 6.2bn+4.9%
    NOPATUSD 4.1bnUSD 4.3bnUSD 4.5bnUSD 4.7bnUSD 4.9bn+4.9%
    Add depreciation & amortisationUSD 1.7bnUSD 1.8bnUSD 1.9bnUSD 2.0bnUSD 2.1bn+4.9%
    Less capital expenditureUSD -2.5bnUSD -2.7bnUSD -2.8bnUSD -2.9bnUSD -3.1bn+4.9%
    Less increase in working capitalUSD -1.8bnUSD -1.9bnUSD -2.0bnUSD -2.1bnUSD -2.2bn+4.9%
    Free cashflow to firmUSD 1.5bnUSD 1.5bnUSD 1.6bnUSD 1.7bnUSD 1.8bn+4.9%
    Discount factor0.95730.87740.80410.73700.6754-
    Present valueUSD 1.4bnUSD 1.3bnUSD 1.3bnUSD 1.2bnUSD 1.2bn-3.9%
    Present Value Of The ForecastUSD 6.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.977Reported 0.965, pulled toward 1.0 (Blume)
    Cost of equity10.37%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 109.2bn80.4% of capital
    Total debtUSD 26.6bn19.6% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.11%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 28.38

    88% of EV

    Forecast FCFF, final year
    USD 1.8bn
    Capex at depreciation, working capital in reinvestment
    USD 4.9bn
    Less reinvestment at g/ROIC (4.8% of NOPAT)
    USD -234.2m
    Capitalised
    USD 4.7bn
    ROIC (reported)
    52.5%
    Terminal value, undiscounted
    USD 72.6bn
    Terminal value, discounted
    USD 49.0bn
    Enterprise value
    USD 55.5bn
    Less net debt
    USD 23.1bn
    Equity value
    USD 32.3bn

    Exit at 20.0x EBITDA

    Value per shareUSD 84.16

    95% of EV

    Terminal value, undiscounted
    USD 166.7bn
    Terminal value, discounted
    USD 112.6bn
    Enterprise value
    USD 119.1bn
    Less net debt
    USD 23.1bn
    Equity value
    USD 95.9bn

    Spread between methods: 99%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.11%41.2646.3952.6460.4070.30
    8.11%30.7834.2438.3143.1849.09
    9.11%23.1125.5628.3831.6635.51
    10.11%17.2619.0721.1023.4326.09
    11.11%12.6714.0415.5617.2719.20

    Outlined: this model. Green text: above today's price of 95.83. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year4.9%43.9%+39.1pp
    EBIT margin13.2%28.3%+15.1pp
    Discount rate9.1%5.5%-3.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.