Economics Paper

Description

I attached the templates and an example of steps 1 and 2. I only need to do steps 1 and 2. do not use the company is the example. Step 1:Select a company and its comparables.Below is the guideline. The company should be a Food or Beverage company.The company should have at least five years of history.For the last 5 years, the company should be profitable (with positive net profit) for at least 3 years.For the company you pick, you need to find another three companies in the same business. Keep the list for your record.Step 2:We use the stockanalysis.com for data collection.Open the website: https://stockanalysis.com (Links to an external site.).Type in selected stock tickerOn the stock page à FinancialsOrganize the data in the order of ascending date from left to right.Select balance sheet -> downloadSelect income statement -> downloadSelect cash flow statement -> downloadSelect ratios -> downloadYou can also collect the key information from the “statistics” page such as market cap, beta, etc…The “overview” page shows a collection of recent news for the company.Compare your company with the industry or competitors. Conduct a brief SWOT analysis.Hint: There is no need to include long paragraph analysis in excel, but you should have the data collected for analysis later.

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MBA 646, Financial valuation
Project Guideline
Dr. Spohn
The project is designed to be worked step-by-step along with the course progress. Upon
completing all the steps, you should have all the components necessary to complete the final
paper. Then, you can organize your research and analysis into a term paper.
The attached excel template provides a guide to conduct the analysis. You can complete the
project assignment, post the work on canvas, and keep up with the progress.
Step 1:
Select a company and its comparables.
Below is the guideline.
a) The company should be a Food or Beverage company.
a. The company should have at least five years of history.
b. For the last 5 years, the company should be profitable (with positive net profit)
for at least 3 years.
b) For the company you pick, you need to find another three companies in the same
business. Keep the list for your record.
Step 2:
Collect financial data.
a) Open the website: https://stockanalysis.com.
b) Type in selected stock ticker
c) Starting from the stock page ? Financials
a. Organize the data in the order of ascending date from left to righ.
b. Select balance sheet -> download
c. Select income statement -> download
d. Select cash flow statement -> download
e. Select ratios -> download
d) You can also collect the key information from the “statistics” page, such as market cap,
beta, etc,
e) The “overview” page shows a collection of recent news for the company.
c) Compare your company with the industry or competitors. Conduct a brief SWOT
analysis.
Hint:
•
There is no need to include lengthy paragraphs in Excel, but you should have the data
collected for analysis later.
Step 3:
Based on the company you picked for the term paper, work out the DCF analysis. You have two
weeks to complete this question. Please take your time and work out the details.
I have included a template in the attached spreadsheet.
1)
2)
3)
4)
5)
6)
Study the slides for DCF analysis.
Replace the numbers in the example with the data of your company.
Complete the missing calculation with excel formula (blue cells)
Answer the questions.
Save the spreadsheet.
The above complete part I of your paper.
Step 4:
Follow the example in Q4-2, work out the relative valuation for your target company in the
project.
a. For your target company, also pick three to four companies in the same industry for
comparison.
b. Collect financial statements for both the target company and its comparables.
c. Estimate EBITDA, P/E ratio, EV / EBITDA ratios for both the target company and its
comparables.
d. Estimate the Enterprise value and equity value using the comparable EV/EBITDA ratios.
e. Estimate the equity value using the comparable P/E ratios
f. Compare the market price of the target company with the value estimates using
EV/EBDITA ratio and P/E ratios.
Step 5:
Work out the Hybrid APV analysis for your company?
•
•
•
•
•
•
From homework 2, estimate the value of the projected FCF during the planning
period.
From homework 4, estimate the terminal value based on the EBITDA multiple
From homework 3, estimate the cost of capital (WACC)
Get the enterprise value of the firm.
Equity value = Enterprise value – interest bearing debt
Equity value / # of shares outstanding = Price per share
Paper:
Up till now, you should have completed different aspects of the company valuation. Please
organize your research and analysis into a final paper.
VALUATION PROJECT: STARBUCKS CORPORATION
1
VALUATION PROJECT: STARBUCKS CORPORATION
LYNN UNIVERSITY
VALUATION PROJECT: STARBUCKS CORPORATION
2
VALUATION PROJECT: STARBUCKS CORPORATION
The financial market fascinates a lot people with its “money aura”, the possibility of
achieving financial success in an extremely easy and quick manner. It is an environment full of
different terms for newcomers such as bearish, dovish, buy, hold, sell, hedge, commodities and so
many others but, suddenly, they all become so trivial and part of one’s life. All investors have one
thing in common, they want to make money and see their investments grow. But where to start,
how to see opportunities and how to diminish risks? Yes, to diminish risks, because they will
always be around.
To better evaluate which stock to buy, or which project to enter, the first step an investor
should take is to have a valuation of the company done before making any decisions. Once an
investor finds the valuation of a specific company based on fundamentals, he/she can make more
assertive decisions on when to buy or sell stocks. Without a fundamental value, the investor could
face short-term fluctuations that do not correspond to the company’s long-term potential and
believe a bad investment choice was made.
In this project, a meticulous approach of valuation is taken to better analyze the chosen
company, Starbucks Corporation.
STARBUCKS CORPORATION (SBUX)
The first Starbucks opened in Seattle, Washington, on March 31, 1971, by three partners
who met while they were students at the University of San Francisco: English teacher Jerry
Baldwin, history teacher Zev Siegl, and writer Gordon Bowker were inspired to sell high-quality
coffee beans and equipment.
Back then, the company was a single store in Seattle’s historic Pike Place Market. From
just a narrow storefront, Starbucks offered some of the world’s finest fresh-roasted whole bean
VALUATION PROJECT: STARBUCKS CORPORATION
3
coffees. The name, inspired by Moby Dick, evoked the romance of the high seas and the seafaring
tradition of the early coffee traders.
In 1981, Howard Schultz (Starbucks chairman and CEO) had first walked into a Starbucks
store. From his first cup of Sumatra, Howard was drawn into Starbucks and joined a year later. In
1983, Howard traveled to Italy and became captivated with Italian coffee bars and the romance of
the coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the United
States. A place for conversation and a sense of community. A third place between work and home.
He left Starbucks for a short period of time to start his own Il Giornale coffeehouses and returned
in August 1987 to purchase Starbucks with the help of local investors. (Starbucks, 2018)
Mission Statement… To inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time.
(Starbucks, 2018)
RAW MATERIAL AND SUPPLY CHAIN
Coffee grown worldwide can trace its heritage back centuries to the ancient coffee forests
on the Ethiopian plateau. There, legend says the goat herder Kaldi first discovered the potential of
these beloved beans after he noticed that after eating the berries from a certain tree, his goats
became so energetic that they did not want to sleep at night. Later, he reported his findings to a
local monastery who made a drink with such berries, and the rest is history. (Wikipedia, 2018)
In 2008, Starbucks’ operational costs were rising even though sales were cooling. With
expenses of more than US $600 million only on coffee each year, the company was victim of its
own success and its extremely rapid expansion. Starbucks implemented a vertically integrated
VALUATION PROJECT: STARBUCKS CORPORATION
4
supply chain, where the company is involved in every step of its supply chain process, all the way
from the coffee bean to the cup of coffee sold to consumers.
Starbucks began working directly to growers and is committed to only selling 100%
ethically sourced Fair-Trade Coffee, a goal achievement in 2015. The company provides to partner
coffee growers around the globe social development investments, farmer loan programs, farmer
support centers and ethical sourcing programs. Over US $70 million were already invested in these
programs and activities, directly improving farmer livelihoods and ensuring a long-term supply of
high-quality coffee for the industry.
Today, Brazil produces one-third of all coffee beans worldwide, followed by Vietnam,
Colombia, Indonesia and Ethiopia. Coffee is a major export commodity, one of the most valuable
ones exported by developing countries.
OPERATIONS
Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them
along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and
confections, and coffee-related equipment primarily through its company-operated retail stores. In
addition to sales through its company-operated retail stores, Starbucks sells whole bean coffees
through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells
bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture
partnerships.
The company’s objective is to establish Starbucks as the most recognized and respected brand in
the world.
VALUATION PROJECT: STARBUCKS CORPORATION
5
GLOBAL FOOT PRINT
Long were the days when walking around Paris, France, was all about having a 100%
French experience. With more than 50 locations in the once traditional French capital, Starbucks
has brought not only to France, but to 78 countries and over 28,218 thousand locations, its
American-Italian coffee experience.
Winning over tradition… Disney has surrendered to a deal with the company back in
2009 for its France theme park, and in 2012 for the ones in the U.S. Universal theme parks have
followed the same partnership steps.
On September 6th, 2018, even with a sign of expected difficulty in winning over traditionobsessed Italians, Starbucks opened its first store and roastery in Italian soil, in the city of Milan.
Starbucks has been focusing on expanding abroad, especially in China, to offset stagnant
sales in the U.S., where the company has been closing stores. (Sylvers, 2018)
VALUATION PROJECT: STARBUCKS CORPORATION
6
STARBUCKS’ MARKETING MIX
Starbucks Coffee Company’s marketing mix (4Ps) supports the company’s industry
position as the leading coffeehouse chain in the world.
Products: Coffee, tea, pastries, Frappuccino beverages, smoothies and merchandise.
Place: Cafés, online store, Starbucks app and retailers.
Promotion: Advertising, public relations and sales promotions.
Price: Above competition, aiming to maintain its high-end specialty image.
SWOT ANALYSIS
S
•
•
•
STRENGTHS
Strong Brand Image
Extensive Global Supply Chain
Moderate Diversification through Subsidiaries
WEAKNESSES
W
•
•
•
High Price Points
Generalized Standards for Most Products
Imitability of Products
O
•
•
•
OPPORTUNITIES
Expansion in Developing Markets
Business Diversification
Partnerships or Alliances with other Firms
•
•
•
THREATS
Competition Involving Low-Cost Coffee Sellers
Imitation
Independent Coffeehouse Movements
T
VALUATION PROJECT: STARBUCKS CORPORATION
7
Starbucks operates in various industries that impose different challenges in growing the
business. The variety of these industries has increased over time as the company develops more
products to complement its core coffeehouse business. The company’s marketing mix indicates
that Starbucks has expanded its product offerings to include tea, food and merchandise in addition
to coffee. The coffeehouse chain business is easy to imitate, with high competition and lower
prices. Starbucks must innovate in product development creating a barrier for imitation. A new
approach to its pricing could take place. Offerings such as bundle pricing could be efficient to
attract new customers and limit competition threats. Finally, a more efficient social action with
local communities, especially abroad, could play a differential role for the company instead of
relying only as a high end, cool and contemporary coffee shop. (Lombardo, 2018)
COMPETITION
For this project three direct competitor companies were chosen: McDonald’s, Whitbread
and Dunkin Brands. All companies are in the Food & Beverage business, and they have either
similar products or present the same type of structure, thus business.
VALUATION PROJECT: STARBUCKS CORPORATION
8
FREE CASH FLOW
Free cash flow represents the cash a company generates after cash outflows to support
operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a
measure of profitability that excludes the non-cash expenses of the income statement and includes
spending on equipment and assets as well as changes in working capital.
In order to calculate the FCF, adjustments for growth rate numbers were made based on:
Revenues – average growth of the last 4 years presented in the company’s income statement.
Expenses – average growth of the last 4 years presented in the company’s income statement.
Depreciation – average growth of the last 4 years presented in the company’s cash flow.
Net Fixed Asset – average growth of the last 4 years presented in the company’s balance sheet.
Interest Rate – Adjusted based on the ratio Interest Expense/Debt.
Tax Rate – average of the last 5 years.
Net Working Capital/Revenues – average of the last 4 quarters.
Current
Growth rate in revenues and expenses
Expense growth rate
Depreciation growth rate
Net fixed asset growth rate
Interest rate
Tax rate
Net Working Capital (t-1) / Revenues (t)
20,00%
3%
1
11,00%
12,00%
15,00%
14,00%
3%
20,00%
3%
2
11,00%
12,00%
15,00%
14,00%
3%
20,00%
3%
3
11,00%
12,00%
15,00%
14,00%
3%
20,00%
3%
4
11,00%
12,00%
15,00%
14,00%
3%
20,00%
3%
5
11,00%
12,00%
15,00%
14,00%
3%
20,00%
3%
6
11,00%
12,00%
15,00%
14,00%
3%
20,00%
3%
Current
24.720,00
17.800,00
1.310,00
5.610,00
175,20
5.785,20
1.157,04
4.628,16
1
27.439,20
19.936,00
1.506,50
5.996,70
283,20
6.279,90
1.255,98
5.023,92
2
30.457,51
22.328,32
1.732,48
6.396,72
314,36
6.711,07
1.342,21
5.368,86
3
33.807,84
25.007,72
1.992,35
6.807,77
348,93
7.156,71
1.431,34
5.725,37
4
37.526,70
28.008,64
2.291,20
7.226,86
387,32
7.614,17
1.522,83
6.091,34
5
41.654,64
31.369,68
2.634,88
7.650,08
429,92
8.080,00
1.616,00
6.464,00
6
46.236,65
Estimate firm free cash flow
Pro-Forma income statement
($ millions)
Revenues
Less: Expenses
Less: Depreciation
Earnings before interest and taxes
Interest expense
Earnings before taxes
Taxes
Net Income
Pro-Forma balance sheet
($ millions)
Net fixed asset
Net Operating Working Capital
Debt
Current
5.929,10
878,05
9.440,10
1
6.759,17
974,64
10.478,51
2
7.705,46
1.081,85
11.631,15
3
8.784,22
1.200,85
12.910,57
4
10.014,01
1.332,95
14.330,74
5
11.415,98
1.479,57
15.907,12
VALUATION PROJECT: STARBUCKS CORPORATION
9
Calculate the free cash flow from asset
Firm free cash flows
EBIT
Less: Tax on EBIT
NOPAT
Plus: Depreciation
Less: CAPEX
Less: Increase in NWC
Free cash flow
Current
1
5.996,70
1.199,34
4.797,36
1.506,50
2.336,57
96,59
3.870,70
2
6.396,72
1.279,34
5.117,37
1.732,48
2.678,76
107,21
4.063,88
3
6.807,77
1.361,55
5.446,22
1.992,35
3.071,11
119,00
4.248,45
4
7.226,86
1.445,37
5.781,49
2.291,20
3.520,99
132,09
4.419,60
4
7.650,08
1.530,02
6.120,06
2.634,88
4.036,84
146,62
4.571,48
COST OF CAPITAL (WACC)
Weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital in which
each category of capital is proportionately weighted. To calculate WACC, the cost of each capital
component is multiplied by its proportional weight and take the sum of the results. The method for
calculating WACC can be seen below:
General assumptions
Risk free rate (rf)
Market risk premium
Tax rate
Beta
unit
%
%
%
3,00%
5,00%
30,00%
0,25
Calculate Weight based on market value
Debt
Preferred
Equity
Total value(billions)
market value
1
0
3
Book value
6,70
0,00
84,50
unit
billion
billion
billion
Weight based on market value
7,3%
0,0%
92,7%
91,20
100%
Estimate the cost of debt
Debt rating
10 year corporate credit spread
Risk free rate
Cost of debt
Baa1
0,99%
3,00%
3,99%
unit
%
%
3,00%
5,00%
0,25
4,3%
%
%
Estimate the cost of equity with CAPM
risk free rate (rf)
market portfoio risk premium (rm – rf)
beta
Cost of equity (re)
%
Estimate cost of equity with comparables
Get unlevered beta from comparables
McDonald’s
Whitbread
Dunkin’ Brands
average
Levered beta
0,19
0,89
0,71
Debt market
value
27.746
1.240
2.755
Equity market
value
141.011
10.656
5.863
Unlevered beta
0,166998414
0,822964249
0,534265546
0,50807607
D/E ratio
0,196764791
0,116366366
0,469895958
VALUATION PROJECT: STARBUCKS CORPORATION
10
Relevered from the comparable average
D/E ratio from
market value
0,079289941
Unlevered beta
0,236853907
Target company – STARBUCKS
Cost of equity using the levered beta
Levered beta
0,25
4,18%
Cost of equity estimation
4,22%
Estimate the cost of preferred
Preferred stock (year ending)
Preferred stock issued (during year)
Redemption of preferred stock (duirng year)
Preferred dividend paid (during year)
Preferred stock (year beginning)
0
0
0
0
0
cost of preferred
0,0%
Summary
Tax rate
Market value
% weight
Before tax cost
After tax cost
% weight * After-tax cost
Sum
30,00%
%
Debt (D)
6,70
7,3%
3,99%
2,79%
0,21%
Preferred (P)
0
0
0
0
0
4,11%
WACC
Equity (E )
84,50
92,7%
4,22%
4,22%
3,9%
4,11%
FCF Valuation
WACC
Free cash flow from assets
Current
4,1%
Estimate terminal value
Total cash flow
Current value of firm
1
2
3
4
3.870,70
4.063,88
4.248,45
4.419,60
4.571,48
4.419,60
115.959,35
120.530,83
3.870,70
4.063,88
4.248,45
5
113.526,60
Estimate the stock price
Current value of firm
Current market value of interest bearing debt
Current value of preferred
Current value of stock
# of shares for common stock
Price per share
what is the market price per share
113.526,60
9.440,00
0
104.086,60
1.240,00
83,94
68,11
Comments: The estimation is a perception of the security’s value (SBUX) that factors tangible and
intangible factors. It shows an investor the company’s overall strength. It does not show how much
investors are willing to pay for the stock at that time (market price). The estimation price gives an
VALUATION PROJECT: STARBUCKS CORPORATION
11
investor a comparable number to the stock’s current market price to better analyses if the stock is under
or overvalued.
RELATIVE VALUATION METHOD
A relative valuation model is a business valuation method that compares a company’s value
to that of its competitors or industry peers to assess the firm’s financial worth.
Relative valuation uses multiples, averages, ratios and benchmarks to determine a firm’s
value. A benchmark is selected by finding an industrywide average, and that average is then used
to determine relative value.
As presented in the beginning of this project, the following companies were chosen as
comparable: McDonald’s, Whitbread and Dunkin’ Brands.
Given, (all values are in thousands)
0,00
Ticker
PERIOD ENDING
Income Statement ($000)
Total Revenue
Cost of revenue
Gross Profit
Operating Expenses
Sel l i ng, general , and admi ni strati ve
Depreci ati on, depl el eti on, and amorti zati on
Others
Operating income or loss
Income from Continuing Operations
Total other i ncome/expenses (net)
Earnings before interest and taxes
Interest expense
Income before tax
Income tax expense
Net income from continuing operations
Nonrecurring Events
Effect of accounti ng changes
Net income
Preferred stock and other adjustments
Net income applicable to common shares
Target
Analysis of comparables
Starbucks
SBUX
09/30/2018
McDonald’s
MCD
31/12/2017
Whitbread
WTBDY
02/28/2018
Dunkin Brands
DNKN
31/12/2017
24.719.500,00
10.174.500,00
14.545.000,00
22.820.400,00
12.199.600,00
10.620.800,00
3.295.100,00
385.100,00
2.910.000,00
860.501,00
137.313,00
723.188,00
1.759.000,00
1.305.900,00
10.738.500,00
741.600,00
2.231.300,00
1.363.400,00
0,00
7.026.100,00
0,00
229.900,00
1.980.900,00
699.200,00
248.975,00
41.419,00
40.792,00
392.002,00
2.143.800,00
1.105.300,00
-347.200,00
10.289,00
3.821.100,00
170.300,00
3.650.800,00
1.262.000,00
2.388.800,00
8.353.300,00
921.300,00
7.432.000,00
3.381.200,00
4.050.800,00
352.000,00
31.700,00
320.300,00
112.000,00
208.300,00
433.420,00
127.178,00
306.242,00
-55.499,00
361.741,00
0,00
4.518.300,00
0,00
4.518.300,00
0,00
5.192.300,00
0,00
5.192.300,00
0,00
437.500,00
0,00
437.500,00
0,00
391.071,00
0,00
391.071,00
8.756.300,00
181.500,00
693.100,00
1.400.500,00
955.400,00
11.986.800,00
602.400,00
5.929.100,00
3.451.600,00
412.200,00
134.700,00
22.516.800,00
2.463.800,00
0,00
1.976.200,00
58.800,00
0,00
4.498.800,00
1.085.700,00
22.448.300,00
2.379.700,00
2.562.800,00
0,00
32.975.300,00
29.200,00
61.400,00
191.100,00
48.800,00
19.800,00
350.300,00
0,00
4.176.000,00
177.100,00
65.400,00
0,00
4.768.800,00
1.018.317,00
0,00
51.442,00
192.502,00
1.262.261,00
140.615,00
169.005,00
888.308,00
65.464,00
0,00
2.525.653,00
1.179.300,00
349.900,00
1.315.900,00
2.845.100,00
9.090.200,00
1.430.500,00
0,00
13.365.800,00
924.800,00
0,00
0,00
924.800,00
29.536.400,00
3.525.300,00
1.119.400,00
35.105.900,00
668.200,00
108.900,00
29.300,00
806.400,00
814.500,00
53.200,00
0,00
1.674.100,00
16.307,00
31.500,00
96.467,00
144.274,00
3.035.857,00
87.603,00
315.249,00
3.582.983,00
0,00
1.300,00
1.457.400,00
-330.300,00
41.100,00
-330.300,00
1.169.500,00
14.535.300,00
0,00
16.600,00
48.325.800,00
-56.504.400,00
7.072.400,00
-2.178.400,00
-3.268.000,00
31.837.900,00
0,00
150.400,00
4.594.700,00
-2.015.800,00
73.200,00
-1.826.400,00
2.802.500,00
4.476.600,00
0,00
90,00
-705.007,00
-1.060,00
724.114,00
-9.690,00
8.447,00
3.591.430,00
0,00
1.240,60
56,84
70.515,70
0,00
770,91
172,12
132.689,03
0,00
734,55
13,88
10.195,55
0,00
82,60
64,47
5.325,22
Balance Sheet ($000)
Assets
Current Assets
Cash and cash equi val ents
Short-term i nvestments
Net recei vabl es
Inventory
Other current assets
Total current assets
Long-term i nvestments
Property, pl ant, and equi pment
Goodwi l l
Other assets
Deferred l ong-term asset charges
Total assets
Liabilities
Current Liabilities
Accounts payabl e
Short/Current l ong-term debt
Other current l i abi l i ti es
Total current liabilities
Long-term debt
Other l i abi l i ti es
Deferred l ong-term l i abi l i ty charges
Total Liabilities
Stockholders’ Equity
Preferred stock
Common stock
Retai ned earni ngs
Treasury stock
Capi tal surpl us
Other stockhol ders’ equi ty
Total stockholders’ equity
Total liabilities and stockholders’ equity
Other Financial Data
Expl orati on expenses (thousands)
Shares Outstandi ng (mi l l i ons)
Year-end 2017/2018 Cl osi ng Pri ce
Market val ues (mi l l i ons)
VALUATION PROJECT: STARBUCKS CORPORATION
12
Solution (All values in thousands)
Interest-bearing debt (ST<) Common equity (price x shares outstanding) Less: Cash and equivalents Equals: Enterprise value EBITDA EV/EBITDA Multiple Market values (millions) Net income applicable to common shares P/E Multiple Shares Outstanding (millions) Average from comparables EV/EBITDA Multiple P/E Multiple Target SBUX 9.440.100,00 70.515.704,00 8.756.300,00 71.199.504,00 5.127.000,00 13,89 70.515,70 4.518.300,00 15,61 1.240,60 MCD 29.536.400,00 132.689.029,20 2.463.800,00 159.761.629,20 9.716.700,00 16,44 132.689,03 5.192.300,00 25,55 770,91 17,01 20,83 16,44 25,55 19,06 23,30 15,53 13,62 84.297.948,16 97.709.518,40 79.622.443,13 115.464.984,81 105.295.020,89 61.525.785,76 EBITDA EV based on EBITDA for SB using comps Plus: Cash Less: Interest-bearing debt Equity value Equity value per share 5.127.000,00 87.209.969,90 8.756.300,00 9.440.100,00 86.526.169,90 69,75 Net income applicable to common shares Equity value based on P/E Ratio Equity value per share based on P/E multiple 4.518.300,00 94.095.263,82 75,85 Enterprise Value Calculations WTBDY 923.400,00 10.195.554,00 29.200,00 11.089.754,00 581.900,00 19,06 10.195,55 437.500,00 23,30 734,55 DNKN 3.067.357,00 5.325.222,00 1.018.317,00 7.374.262,00 474.839,00 15,53 5.325,22 391.071,00 13,62 82,60 Comments: Price of share at $56,84 is not far from estimations calculated using benchmark numbers. To think that the stock has traded at $68,72 this past month (Nov/18) shows that investors are trading the stock at a fairly value price range based on the estimations above. HYBRID APV METHOD Free cash flow forecasting year FCF Terminal value from EBITDA multiple Total cash flow Cost of capital (WACC) Benchmark EV/EBITDA ratio Enterprise value 4,10% 17,01 103.133,49 less: interest bearning debt Equity value # of shares outstanding price per share 9.440,00 93.693,49 1.240,60 75,52272557 0 1 2 4.894,52 5.090,30 3 4 5.293,91 5.505,67 5 5.725,90 97397,49299 103.123,39 Comments: SBUX's share has been trading very close to the estimation above as it was traded at $68,72 on 11/08/2018. Fluctuations are extremely normal as we are dealing with variable income investments. Investors might be a little cautious, and even though they might believe in VALUATION PROJECT: STARBUCKS CORPORATION 13 the company's future growth potential, they do not want to be too optimistic until the international scenario clears up a little for 2019 (trade war with China, Brexit and internal political issues). OUTLOOK Starbucks has invented a new way of doing business. It is a coffee company with a product people love and investors have been rewarded. Whoever invested in the company during its IPO in 1992 would have seen compounded annual growth rate of more than 22% a year. It is unclear if the company can continue to show such performance in the future. It is impressive that despite a high CAPEX associated with rapid new store openings, Starbucks has been able to deliver over 20% year on year earnings growth in the past 5 years, and it has exceeded the US Hospitality industry average in the past year (56% vs 39.2%). After emerging big, SBUX starts to look a very mature company. The last 2 years have been a sign of deep market penetration, high investments, U.S. business has been restructured to become more profitable, and over 150 underperforming stores will be closed in 2019. Dunkin’ Donuts’ shares, SBUX biggest competitor, have rocketed around 50% higher over the past two years, while SBUX’s has fallen more than 10%. Alternative strategies took place this year. For example, the TAZO brand was sold and the marketing and distribution of its CPG business was outsourced to Nestle (outside the U.S.), a deal that will bring to SBUX US $7.5 billion for the perpetual license. SBUX will also retain significant earnings from this deal, not having to tie capital in operating it. VALUATION PROJECT: STARBUCKS CORPORATION 14 Starbucks recently converted its stores in Germany, Singapore, Taiwan, and Brazil from company-operated to franchise-operated and is actively exploring similar actions in other markets. New Market The company has re-allocated capital towards growth in China and returning cash to shareholders. SBUX opportunity for growth in China is enormous. With an emerging middle class of 300 million people, the population of the U.S., Starbucks expects revenue to more than triple in the next 4 years. Starbucks converted its franchised stores in East China into company-operated stores. The East China transaction included 1,300 stores located in Shanghai, Jiangsu and Zhejiang. Young middle-class Chinese consumer is embracing western coffee culture, and it is not unthinkable that China will outgrow the company’s U.S. market in the next 20 years. (Okapi, 2018) My take: China will be key, future seems bright BUY RATED The stock has appreciated by 16.3%, including dividends paid, in 2018. Positive momentum may carry on into 2019. With the restructure appointed by the CEO, I believe SBUX will see Expenses and Capex numbers decrease in the coming years and, hopefully, an increase in revenues due to royalty deals and licensing. Revenue and earnings might decline domestically, with inflationary VALUATION PROJECT: STARBUCKS CORPORATION 15 pressures and minimum wage increase, but internationally, specifically in Asia, numbers should outperform expectations. Estimations for FCF seem strong and debt (due to restructure) should be reduced. The company also has committed to buy back stocks in the amount of US $15 to $20 billion by the end of 2020, which is good news for shareholders. Price per share using the Hybrid APV method showed that the number is not too far from current prices, which might indicate that SBUX could be a great investment. The only IF (negative outlook) could be an increase in SBUX debt, in the amount of US $9.49 billion at this moment. Upside could be potential if investors think long term, 5 years. Buy rate is reiterated, with focus on a strong brand, a reduction cost aggressive business plan, a more integrated than ever supply chain and a strong focus in Asia. VALUATION PROJECT: STARBUCKS CORPORATION 16 REFERENCES Lombardo, J. (2018). Starbucks Coffee Company SWOT Analysis & Recommendations. Business & Management. Panmore Institute. Retrieved from https://www.clubedeautores.com.br/backstage/my_books/35566 Okapi Research. (2018, December 11). Buy Starbucks: Significant Growth From China. Retrieved from https://seekingalpha.com/article/4227801-buy-starbucks-significantgrowth-china?dr=1 Starbucks Corporation. (2018, December 08). Retrieved from https://www.starbucks.com/about-us/company-information Sylvers, E. (2018, September 06). Business. After 25,000 Stores in 78 Countries, Starbucks Turns to Italy. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/after-25-000-stores-in-78-countries-starbucks-turns-to-italy1536206460 Wikipedia contributors. (2018, November 27). History of coffee. In Wikipedia, The Free Encyclopedia. Retrieved 19:14, December 8, 2018. Retrieved from https://en.wikipedia.org/w/index.php?title=History_of_coffee&oldid=870809555 Q2-3 Hint: This is the first step of your final project. There is no need to include long paragraph analysis in the excel, but you need to have the data collected Organize the financial data Copy and past the data in the following format income statement + balance sheet + cash flow statement from left to right in the ascending order of date, the latest on the right column 5-10 years of data some line items could vary. Sales Cost of Goods Gross Profit Operating Expenses Operating Income Interest Expense Dec-16 Dec-17 Dec-18 3,904,384 3,406,170 498,214 463,817 34,567 0 4,476,412 3,720,196 756,216 485,618 270,794 0 4,864,985 3,953,993 910,992 653,617 258,368 0 Other Income Pre-tax Income Income Tax Net Income Continuous Net Income EPS Basic Total Ops EPS Basic Continuous Ops EPS Diluted Total Ops EPS Diluted Continuous Ops EPS Diluted Before Non-Recurring Items Ebitda Cash Flows From Operating Activities Net Income Depreciation Amortization Income taxes - deferred Accounts receivable Accounts payable and accrued liabilities Other Working Capital Other Operating Activity Operating Cash Flow Cash Flows From Investing Activities PPE Investments Net Acquisitions Purchase Of Investment Sale Of Investment Investing Cash Flow Cash Flows From Financing Activities Change In Short Term Borrowing Debt Issued Debt Repayment Common Stock Issued Common Stock Repurchased Other Financing Activity Financing Cash Flow Exchange Rate Effect Beginning Cash Position End Cash Position Change In Cash Free Cash Flow 4,172 38,739 15,801 22,938 $22,938 4,949 275,743 99,490 176,253 $176,253 10,068 268,436 91,883 176,553 $176,553 0.78 0.78 0.77 0.77 0.77 $180,935 6.19 6.19 6.17 6.17 6.6 $434,142 6.35 6.35 6.31 6.31 9.06 $460,347 Dec-16 Dec-17 Dec-18 22,938 146,368 -14,207 -1,923 -6,734 114,204 94,514 $355,160 176,253 163,348 -18,026 -140 10,908 68,045 67,828 $468,216 176,553 201,979 10,585 -8,298 32,080 104,077 104,576 $621,552 -258,