Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Nikhil Nair, Published: October 28, 2020 8:42pm 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 am basing my estimate for Starbucks around the assumption that a cure/vaccine for COVID will be found by the Sep 21E quarter. The result of this is that WFH ends and morning traffic increases. Until then recovery for Starbucks will be sluggish but the passing of a stimulus bill will cause an increase in US comp-store sales for Dec 20E. The cells in yellow within the model are where I have made my changes. These assumptions have impacted the following items:
- US Comp Store Sales
- Average licensed stores added - Assumed a slow rate of addition until a vaccine is found
- Dividend Payout - Will be maintained at Sep20E level until a vaccine is found
- Comp Store Sales (International) - Rebound in China and Japan to be offset by the slower pace of recovery in Europe and Latin America
- Operating expenses exDepreciation (%of revenue) - Will gradually reduce from June-20E levels (for US and international stores)
- Share repurchase price
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.