Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Fahid Naseer, Published: October 24, 2021 Category: Earnings Preview (Prior to the F4Q2021 SBUX Results)
|
|
| ||||||
Notes From the Model Developer: There is a growing concern of unemployment as well as workers quitting due to higher demand of wages ripping through the restaurant industry overall leading to staffing challenges. Therefore, Starbucks reinvesting store level margin upside into labor (which it has a history of doing) to continue to drive market share gains which could impact medium-term profits.
Dismal supply chain issues continue to hurt Starbucks. In third-quarter fiscal 2021, net revenues for the Channel Development Segment declined 7% following a fall of 29% and 25% YOY in second- and first-quarter fiscal 2021, respectively. The downside was primarily due to nearly 20% unfavorable impact of Global Coffee Alliance transition-related activities and global supply chain management complications, further compounded by the global concern for COVID variants.
SBUX narrowed both global and China sales growth for fiscal 2021. Starbucks anticipates China comparable store sales growth to be 18-20%, down from the prior estimate of 27% to 32%. In fourth-quarter fiscal 2021 China comparable store sales are anticipated to be flat.
Dismal supply chain issues continue to hurt Starbucks. In third-quarter fiscal 2021, net revenues for the Channel Development Segment declined 7% following a fall of 29% and 25% YOY in second- and first-quarter fiscal 2021, respectively. The downside was primarily due to nearly 20% unfavorable impact of Global Coffee Alliance transition-related activities and global supply chain management complications, further compounded by the global concern for COVID variants.
SBUX narrowed both global and China sales growth for fiscal 2021. Starbucks anticipates China comparable store sales growth to be 18-20%, down from the prior estimate of 27% to 32%. In fourth-quarter fiscal 2021 China comparable store sales are anticipated to be flat.
Valuation: My DCF based (5 years) price target is $107 with an implied P/E multiple of 31.0x, while WACC is calculated to be 7.3%. My $107 price target implies a P/E multiple of 27.0x and an EV/EBITDA multiple of 17.0x on my FY2023E estimates. Using the NTM EPS estimates and NTM P/E Ratio of the last three months from July 2021 to Sept 2021, my implied multiples fall in the lower end of P/E Ratio High to Low and FY23 P/E High to Low.
Starbucks typically trades 20x to 30x forward earnings, however, due to micro and macroeconomic factors as stated earlier, such as inflation and Fed rates decisions as well as undesirability of the debt ceiling breach and a downturn of the economy, SBUX should be valued in the low end of the historic range. The P/E multiple used for valuation was 31.0x which is on the lower end of the last 3-month average, giving an implied P/E 12-month target value of $110. Combined with my implied DCF 12-month target value of $107, this results in an implied 50/50 average target value of $108, and target price band between $101 to $121.
Starbucks typically trades 20x to 30x forward earnings, however, due to micro and macroeconomic factors as stated earlier, such as inflation and Fed rates decisions as well as undesirability of the debt ceiling breach and a downturn of the economy, SBUX should be valued in the low end of the historic range. The P/E multiple used for valuation was 31.0x which is on the lower end of the last 3-month average, giving an implied P/E 12-month target value of $110. Combined with my implied DCF 12-month target value of $107, this results in an implied 50/50 average target value of $108, and target price band between $101 to $121.
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.