Starbucks (Ticker Symbol: SBUX) is an American multinational chain of coffeehouses and roastery reserves. Starbucks is also the world’s largest coffeehouse chain. In 2020, Starbucks’s sales decreased due to the government shutdowns and social distancing measures put in place due to local authorities. This week, I fundamentally analyze Starbucks’s stock. I review Starbucks’s proxy statement, key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment. I review how the management’s compensation package is structured, and how it incentivizes the management to make certain counter-intuitive decision. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Earnings per Share, Book Value, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc. I also compare the SBUX’s current valuation to that of S&P 500.
After taking into account 2019’s free cash flow of $3,240 million figure, a 3% growth rate of FCF (growth for the next 10 years), 10% discount rate, 2% long term growth rate (growth from 10 year mark to perpetuity), 1,181 million shares outstanding, and $14,660 million of long term debt, the DCF analysis yields us an intrinsic value of $24.01 per share. Using the current stock price of about $112.33 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 0.1%.
0:33 Proxy Statement / Executive Compensation
5:45 Key Ratios Analysis
17:44 Discounted Cash Flow Analysis / Intrinsic Value
19:28 Expected Rate of Return Calculation
20:31 Summary / Conclusion
Starbucks’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Starbucks Corporation is an American multinational chain of coffeehouses and roastery reserves headquartered in Seattle, Washington. As the world’s largest coffeehouse chain, Starbucks is seen to be the main representation of the United States’ second wave of coffee culture.
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