Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Hampton Boyd, Published: October 23, 2021 Category: Earnings Preview (Prior to the F4Q2021 SBUX Results)
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Notes From the Model Developer: I brought down product and distribution costs as well as store operating expenses slightly to reflect increase in online purchases facilitating store operations as well as company streamlining costs and implementing automation. This will drive international operating margins to 18.4% for FY21 and to 20.2% for FY22. Using the same logic I forecasted similar for U.S. costs bringing operating margins to 21.2% for FY21 and 21.5% for FY22. Non-gaap diluted EPS for the year as a result of this bottom-line growth came out to $3.29 exceeding consensus estimates significantly.
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I forecasted comp store sales to rise both internationally and domestically. I believe the retail sales weakness in China will not last and consumer spending will be high as a result of the macro environment encouraging such. Starbucks impressive AUV, innovative product offerings, and competitive advantage will drive continued top-line growth. As consumers return to the office they will be consuming much more coffee and will pass Starbucks' conveniently placed locations on the way. Their mobile app driving customer loyalty will also increase customer satisfaction as wait-times will be short and each location can derive more sales. Revenue for the year will come out to ~29.2B exceeding estimates.
Multiple-Based Valuation: Given the factors above (innovative offerings, customer loyalty, ease of ordering, competitive advantage coffee consumption, growth etc) Starbucks will continue to grow and establish themselves as the premier coffee house chain. This, in addition to a resilient stock market and record-low rates for the foreseeable future, will command a higher multiple for the company. My price target of $128 is derived from a P/E multiple of 33x, close to the 3 month high of of 33.7x and in excess of their TTM average of 31.4x. Given the companies competitive position and the street currently underestimating their continued growth I find this to be completely reasonable to trade slightly above their average multiple.
Equity Risk Premium Forecast Assumptions: I believe corporate earnings will continue to rise in the near-term and the economy will continue to do well. Strong consumer spending will be a large driver of this. I believe the fed will keep rates low as inflation will prove to be transitory. For this reason I have forecasted the S&P's implied volatility slightly lower at 17.6%. I also believe corporate taxes will remain at 21%.
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.