Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Jacob Conecoff, Published: October 28, 2020 1:23pm Category: Earnings Preview (Fiscal 4Q2020)
Model Description: This model predicts earnings and cash flows for Starbucks Corp (NASDAQ:SBUX) driven by estimates of comp-store sales and store count estimates. Ratio analysis is used to complete the financial statements. The Equity Risk Premium Model (ERP) uses the Fed Funds rate, 10-year U.S. Treasury rate, implied volatility, equity market returns, and the Constant Sharpe Approach, to estimate the Equity Risk Premium (ERP). The ERP and the Capital Asset Pricing Model (CAPM) are used together to calculate the required return on equity for the DCF-based share valuation within the Starbucks model.
Notes From The Model Developer: I have a fairly neutral view on SBUX at this point. Recovery has been slower than anticipated in the United States and COVID cases have seen an uptick in recent months. As we move into colder months, I forecast cases to continue to rise as people can no longer congregate outside in many parts of the country. SBUX has done well in updating their touchless ordering which will benefit them during this time although I predict comp store sales to remain sales percentages to remain negative until F2Q21. Additionally, operating expenses will be a larger percentage of revenue as sales decrease and SBUX is forced to spend more on COVID precautions to keep stores open. International segments have recovered more rapidly, specifically in China and Japan. I believe a vaccine will become available for distribution Q1 '21, but full recovery lagging. The model also incorporates a Biden win in November. I predict rates to remain low during this time to help stimulate the economy, similar to Obama era. Additional comments have been embedded within both models as well.
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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.