Christopher Adrian's Contributor Page
|
Company: Starbucks Corp (NASDAQ:SBUX)
Last Updated: October 8, 2021 (Prior to the F4Q2021 SBUX Results) View: Neutral Q4FY2021 Earnings Preview: SBUX is scheduled to report Q4FY2021 earnings on 10/28. I do expect Q4FY2021 EPS to be $1.00 (consensus $1.01), leading to FY2021 EPS of $3.24 (consensus $3.24). Q4FY2021 revenue is expected to be $8.28bn., leading to FY2021 revenue of $29.19bn. |
| ||||
Base Scenario: The main drivers of this model to forecast top-line growth are new stores added and the yoy. comp. stores sales growth rate. Bottom-line growth is also driven by the targeted operating margin (non-GAAP). According to my base scenario I do expect the yoy. comp. store sales growth rate to be 4.5% from FY2023 onwards, being in line with the targeted long term yoy. comp. store sales growth rate (4.0% to 5.0%). I do expect that this management guidance already accounts for some of the major trends in the global coffee market:
The main effects are expected to take place in FY2023 due to hedging strategies conducted by management. With regard to favorable global trends and the pricing power of SBUX, I do expect that the pressure on margins will be partially offset by pricing initiatives in FY2022 and FY2023, leading to operating margins (Non-GAAP) to be at 18.5% in FY2023.
Valuation: The implied 12m target share price is derived from the equal weighted average of my DCF model (base scenario) and from 12m F P/E-multiple with 31.4x base scenario FY2022E EPS of $3.79. The 12m F P/E-multiple represents a premium to a group of comparable fast food restaurants (Median 26.2x) which I think is reasonable due to the potential of higher medium and long term revenue growth of SBUX. More details are given in the equity research report attached.
- yoy. growth of the global coffee market of 8.0% to 9.0% until 2024,
- consumer shifts to higher quality products (e.g. "premium arabica coffee") and
- coffee as a part of a change in consumer's lifestyle with trends to "better for You" and "cold brew" options.
The main effects are expected to take place in FY2023 due to hedging strategies conducted by management. With regard to favorable global trends and the pricing power of SBUX, I do expect that the pressure on margins will be partially offset by pricing initiatives in FY2022 and FY2023, leading to operating margins (Non-GAAP) to be at 18.5% in FY2023.
Valuation: The implied 12m target share price is derived from the equal weighted average of my DCF model (base scenario) and from 12m F P/E-multiple with 31.4x base scenario FY2022E EPS of $3.79. The 12m F P/E-multiple represents a premium to a group of comparable fast food restaurants (Median 26.2x) which I think is reasonable due to the potential of higher medium and long term revenue growth of SBUX. More details are given in the equity research report attached.
|
Equity Risk Premium Model
Last Updated: October 8, 2021 Notes From the Model Developer: Although there has been an increase in inflation (PCE 4.2%, PCE-Core 3.7%, released 9/22) well ahead of the Fed’s target (2.0%) recently, I do not expect the Federal Reserve to raise the Federal Funds rates in 2022. With regard to the projections of the Fed (PCE-Core 2.3% in 2022, 2.2% in 2023), the recent spike in inflation is a side effect caused by the economic recovery from COVID-19 rather than a permanent condition. |
| ||
Overall, I do not think that there will be any increase in the Federal Funds rates until 3Q2023. Referring to the last FOMC Committee Statement (9/22), I do expect a steeper tapering path of the ongoing securities purchase program before the Federal Funds rates are raised.
Due to a robust economic recovery, I do expect that the monthly securities purchase program is decreased by approximately $15bn. to $20bn. (Current monthly purchases: $80bn. US Treasuries, $40bn. agency mortgage-backed securities) in Q1F2022. I do not expect that this decrease will cause a meaningful increase in volatility for equity markets (VIX). Furthermore, since most market participants expect a raise in Federal Funds rates due to ongoing economic recovery, I do not expect a sharp increase in volatility when the Fed raises the Federal Funds rates in 2Q2023 (+0.25%). I do expect the Fed to raise the Federal Funds Rates once more by +0.25% by the end of 4Q2023.
Overall, I do expect the target range of Federal Funds rate to be 0.50% to 0.75% in 4Q2023. Because of the expected steady economic recovery in 2022 and 2023, I do not expect market participants to be surprised by the expected increase in the Federal Funds rates, thus I do not expect a sharp increase in market volatility (VIX) and I only forecast a moderate negative return in equity markets (S&P 500 -2.0% in 2Q2023).
Due to a robust economic recovery, I do expect that the monthly securities purchase program is decreased by approximately $15bn. to $20bn. (Current monthly purchases: $80bn. US Treasuries, $40bn. agency mortgage-backed securities) in Q1F2022. I do not expect that this decrease will cause a meaningful increase in volatility for equity markets (VIX). Furthermore, since most market participants expect a raise in Federal Funds rates due to ongoing economic recovery, I do not expect a sharp increase in volatility when the Fed raises the Federal Funds rates in 2Q2023 (+0.25%). I do expect the Fed to raise the Federal Funds Rates once more by +0.25% by the end of 4Q2023.
Overall, I do expect the target range of Federal Funds rate to be 0.50% to 0.75% in 4Q2023. Because of the expected steady economic recovery in 2022 and 2023, I do not expect market participants to be surprised by the expected increase in the Federal Funds rates, thus I do not expect a sharp increase in market volatility (VIX) and I only forecast a moderate negative return in equity markets (S&P 500 -2.0% in 2Q2023).
|
About the Model Developer: Christopher Adrian has a Master of Finance (M.Sc) degree and is a Level I 2021 candidate within the CFA program. Christopher worked several years as a Fixed Income Sales in a major German bank and as a financial consultant at a big 4 company. Within his apprenticeship as an Investment Fund specialist company he worked several weeks within an asset manager‘s equity research department. He conducted investment research analysis and prepared DCF-models for companies within the transportation & logistics sector.
Disclosure: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions. |