SBUX FINAL Presentation

Ryan Tamashiro Luis Villacrez

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Company Description- Who are they?

- Seattle’s Best Coffee (1971)

- Products- Espresso and Tea Beverages

- Pikes Place Market- Operates 22,519 Stores- Employs 191,000 Partners

- Retail Product lines- Consumer Packaged Goods- Ready to Eat and Drink Line

Company Description (cont.)

- How are they currently doing?

- Revenue: $20 Billion- Margins: 60% (Gross) 15% (Net)

- Market Capitalization: $82.3 Billion

- Positive Growth Trends - Awards and Recognition

Company Description (cont.)- What is their business strategy/model?

- Customer Centric - Serviced Based - Third Place- Brand Loyalty- Sustainable Growth

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Strengths- Brand Recognition- Market Share- Employee Satisfaction

- Affordable Luxury- Brand Loyalty- Quality Products

Weaknesses- High Operating Costs- Business Model- Expensive Product Development

- Acquisitions- Joint Ventures

Opportunities

- Technology Innovation

- Foreign Expansion

- Tea Markets

- Strategic Partnership and Acquisitions

- Green Initiative

Risks & Threats- Low Barrier to Entry

- Commodity Price Pressure- Supply Chain Management

- Market Saturation- Exchange Rate Risk- Global Slowdown

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Growth Rate:

Terminal Growth Rate:

Beta:

Cost of Debt:

Cost of Equity:

Market Premium:

Effective Tax Rate:

WACC:

DCF Assumptions18.07%

1.013.14%

10.84%8.86%

31.93%8.63%

3.00%

Model Considerations

- RD – Moody’s Credit Rating

- Beta Calculation (Regression)

- WACC- CAPM – Market Premium (5 year historical avg.)

- Risk-free Rate- Growth Rate

* Confirmed from the F.S.

DCF Valuation

PV FCFF:

PV Terminal Value:

Total Value of Firm:

Value of Debt:

Value of Equity:

# Outstanding Shares:

$15,594.57$49,800.39$65,384.96

$2,347.50$63,047.461.46 Billion

DCF Valuation: $61.19

Relative Valuation- Competitors

- No true competitors- Costa Coffee- Dunkin Brands- McDonalds

Dunkin Brands:

McDonalds:

Jamba Juice:

P/E P/S P/BV EV/EBITDA P/EBITDA43.06

26.35

21.98

5.37

4.54

1.06

N/A

16.37

15.47

15.86

14.64

N/A

13.11

15.91

N/A

Average: 30.46 3.66 15.47 15.92 14.51

SBUX Implied Price: $57.88 $42.98 $62.34 $35.78

Growth Rate:

Terminal Growth Rate:

Unlevered Beta:

Cost of Debt:

Unlevered Cost of Equity:

Market Premium:

Effective Tax Rate:

WACC:

APV Assumptions18.07%

1.01 .793.14%

10.84 8.89%8.86%

31.93%8.63 8.34%

3.00%

APV Valuation

PV FCFF (Unlevered RE):

PV Terminal Value (Unlevered RE):

PV Tax Shield (Cost of Debt):

Total Value of Firm:

Value of Equity:

# Outstanding Shares:

APV Valuation: $62.56$16,009.49$47,308.78

$388.98$63,707.25$61,359.751.46 Billion

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Sensitivity Analysis

Growth Rate

WAC

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Value Enhancement- Strong International Growth Prospects

- Recovery in Europe

- New product lines/ Distribution Channels

- Innovative Capacity

PV FCFF:

PV Terminal Value:

Total Value of Firm:

Value of Debt:

Value of Equity:

# Outstanding Shares:

10-Yr. Extended Growth 2 Stage Growth

$39,510$76,373

$115,883$2,348

$113,536

$77.76

$29,948$76,373

$105,921$2,348

$103,5731.46 Billion

$70.941.46 Billion

Recommendation

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S Overview

Valuation

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S Overview

Valuation

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S.W.O.T

BUYPrice Target: $70.94

Current Price: $56.45