Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Fadi Badlissi, Published: October 27, 2020 8:36pm Category: Earnings Preview (Fiscal 4Q2020)
Description of Model Assumptions - Calibration & Forecasting, DCF and Multiple Analysis
- Historic trend and seasonality have been considered within the model forecast.
- Based on COVID effect in 2019 with another wave anticipated in the US with a more significant impact compared to the international market, I reduced the comp store sales total for the US more than international stores.
- Similarly due to COVID, I reduced the revenues from licensed stores in the US more than international.
- I also increased the operating expenses in consideration of fixed costs, for the US more than international, but reduced slightly the international licensed stores expenses as there will be less need to support licensees per management guidance.
- I increased the dividends by 10% for Q42020 based on SBUX board decision on 9/30.
- I increased the repurchase price of shares based on the current share value.
- I increased the Channel Development Segment year-over-year growth due to the reported increased sales of packaged coffee and single serving products primarily through Nestle.
- I tapered down the comp stores sale from FY2022 onward especially for Q2 through Q4 to keep the seasonality post-COVID recovery and to counter the compounding effect of growth from the post-COVID recovery.
- I ran into negative cash balance in FY2023-25, hence I reduced the stock repurchase amount and the payments of the long-term debt (especially with the current low interest rates which may last at least for couple of years).
- Overall my modelled forecast is consistent with historic results and reasonable relative to consensus estimates including revenues, free cash flow, and operating margins. My growth rates for 2021 are consistent with the COVID impact in 2019.
- My estimates are not far off from management guidance, except for my opinion of more loss of revenues in Q1 and Q2 2021.
- I estimated an increase in volatility for 4Q2020 and 1Q2021.
- I decreased the S&P500 return forecast due to uncertainties in 4Q2020, 1Q and 2Q2021, with a rebound after.
- I adjusted the 10 yr. treasury yield according to the slowdown due to COVID and rebound after.
- I completed the rest of the DCF calculation based on the above assumptions.
- I calculated a multiple based on estimates for FY20 and FY21, and chose a multiple on the higher side of historic valuations considering the recent trend for SBUX.
- I calculated the potential price range based on the historic mean return and standard deviation in returns.
- I calculated different FY2021 scenarios based on low to high PE multiples and EPS, a form of sensitivity analysis.
- I compared my target share price and EPS to the consensus and the PE multiple I used, to make sure that there were no extreme deviations, and they seem to fall within the range albeit on the lower side.
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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.