Starbucks Corporation: $SBUX Cash Flow Valuation Update

Current Price: ~ $54/share
Yield: ~ 1.33%

Through a global chain of almost 17,500 company-owned 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 single-serve packets, K-Cups, 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 5-Year Growth: ~ 12% per year

Consensus Forecast Company 5-Year Growth: ~ 18% per year

Internal Growth Rate: ~ 12%

Sustainable Growth Rate: ~ 22%

Scenario 1
Average FCF (2012, 2011, 2010) is $1080 million

• Start at $1080 million FCF
• Assume a 5-year growth rate in FCF of 18% per year, then no growth or 0% 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	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,

• Assume a 5-year 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

Morningstar.com

Yahoo! Finance

Starbucks.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Starbucks Corporation: $SBUX cash flow valuation update

Current Price: ~ $46/share
Projected Yield: ~ 1.50%

Through a global chain of more than 17,000 company-owned 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 single-serve packets, K-Cups, and tea through grocery stores and warehouse clubs under the Starbucks, Tazo, Seattle's Best Coffee, and Torrefazione Italia brands. 

I estimated the firm's WACC today at 11.99% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2002	102
2003	209
2004	408
2005	280
2006	360
2007	251
2008	274
2009	943
2010	1264
2011	1081

Average Annual Growth FCF: ~ 49%

CAGR FCF: ~ 30%

Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 18% per year

Scenario 1

Starting at a decade-high $1264 million FCF, assuming the company achieves a 5-year growth rate in FCF of 18% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1264
1	1492
2	1760
3	2077
4	2451
5	2892
Terminal Value	28456

The firm's future cash flows, discounted at a WACC of 11.99%, give a present value for the entire firm (Debt + Equity) of $23566 million. If the firm's fair value of debt is estimated at $600 million, then the fair value of the firm's equity could be $22966 million.  $22966 million / 745 million outstanding shares is approximately $31 per share and a 20% margin of safety is $25/share.

Scenario 2

Starting at $1264 million FCF, assuming the company achieves a 5-year growth rate in FCF of 18% per year, and then a growth rate in FCF of 5% per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1264
1	1492
2	1760
3	2077
4	2451
5	2892
Terminal Value	48807

The firm's future cash flows, discounted at a WACC of 11.99%, give a present value for the entire firm (Debt + Equity) of $35119 million. If the firm's fair value of debt is estimated at $600 million, then the fair value of the firm's equity could be $34519 million.  $34519 million / 745 million outstanding shares is approximately $46 per share and a 20% margin of safety is $37/share.

Sources

Morningstar.com

Yahoo! Finance

Starbucks.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Starbucks Corporation: $SBUX cash flow valuation

Current Price: ~ $39/share
Projected Yield: ~ 1.32%

Through a global chain of more than 16,600 company-owned 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 coffee and tea through grocery stores and warehouse clubs under the Tazo, Seattle's Best Coffee, and Torrefazione Italia brands. Starbucks also markets bottled beverages, ice creams, and liqueurs through various partnerships.

I estimated the firm's WACC today at 14.60% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	77
2002	102
2003	209
2004	408
2005	280
2006	360
2007	251
2008	274
2009	943
2010	1264
TTM	921

Average Annual Growth FCF: ~ 54%

CAGR FCF: ~ 36%

Consensus Forecast Industry 5-Year Growth: ~ 15% per year

Consensus Forecast Company 5-Year Growth: ~ 18% per year

Scenario 1

Starting at $1264 million FCF, assuming the company achieves a 5-year growth rate in FCF of 18% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1264
1	1492
2	1760
3	2077
4	2451
5	2892
Terminal Value	23371

The firm's future cash flows, discounted at a WACC of 14.60%, give a present value for the entire firm (Debt + Equity) of $18,729 million. If the firm's fair value of debt is estimated at $620 million, then the fair value of the firm's equity could be $18,109 million.  $18,109 million / 750 million outstanding shares is approximately $24 per share and a 20% margin of safety is $19/share.

Scenario 2

Starting at $1264 million FCF, assuming the company achieves a 5-year growth rate in FCF of 18% per year, and then a growth rate in FCF of 7% per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1264
1	1492
2	1760
3	2077
4	2451
5	2892
Terminal Value	44897

The firm's future cash flows, discounted at a WACC of 14.60%, give a present value for the entire firm (Debt + Equity) of $29,619 million. If the firm's fair value of debt is estimated at $620 million, then the fair value of the firm's equity could be $28,999 million.  $28,999 million / 750 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.

Sources

Morningstar.com

Yahoo! Finance

Starbucks.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.