Current Price: ~ $54/share
Yield: ~ 1.33%
Through a global chain of almost 17,500 companyowned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, complementary food items, and other accessories. In addition to its retail operations, the firm distributes packaged coffee, VIA singleserve packets, KCups, and tea through grocery stores and warehouse clubs under the Starbucks, Tazo, and the Seattle's Best Coffee brands.
Estimated WACC for the firm today is 9.41% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year

FCF
$Millions

2003

209

2004

408

2005

280

2006

360

2007

251

2008

274

2009

943

2010

1264

2011

1081

2012

894

Average Annual Growth FCF: ~ 35%
CAGR FCF: ~ 17.5%
Consensus Forecast Industry 5Year Growth: ~ 12% per year
Consensus Forecast Company 5Year Growth: ~ 18% per year
Internal Growth Rate: ~ 12%
Sustainable Growth Rate: ~ 22%
Scenario 1
Average FCF (2012, 2011, 2010) is $1080 million
Average FCF (2012, 2011, 2010) is $1080 million
 Start at $1080 million FCF
 Assume a 5year growth rate in FCF of 18% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 9.41%, give a present value for the entire firm (Debt + Equity) of $26570 million. If the firm's fair value of debt is estimated at $674 million, then the fair value of the firm's equity could be $25896 million. $25896 million / 744 million outstanding shares is approximately $35 per share and a 20% margin of safety is $28/share.
Year

FCF
$Millions

0

1080

1

1274

2

1504

3

1774

4

2094

5

2471

Terminal
Value

30977

The firm's future free cash flows, discounted at a WACC of 9.41%, give a present value for the entire firm (Debt + Equity) of $26570 million. If the firm's fair value of debt is estimated at $674 million, then the fair value of the firm's equity could be $25896 million. $25896 million / 744 million outstanding shares is approximately $35 per share and a 20% margin of safety is $28/share.
Scenario 2
All else being equal,
All else being equal,
 Assume a 5year growth rate in FCF of 18% per year, then 4% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year

FCF
$Millions

0

1080

1

1274

2

1504

3

1774

4

2094

5

2471

Terminal
Value

53874

 Present Value of the entire firm (Debt + Equity): $41173 million
 Value of Equity: $40499 million or $54/share
 20% margin of safety is $43/share
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.