Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Raul Oreste, Published: October 27, 2020 9:35pm 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.
Note From the Model Developer: I believe Starbucks will not lose much value in their stock due to COVID. The actions taken by management will mostly counter the effects of COVID in the long term. They will be able to adapt to new consumer habits and reposition their stores in current and new markets. In the international segment, growth in China will shadow new restrictions due to COVID (mostly in Europe). However, I don't believe growth in the short term will be achieved in the way that management is estimating. I believe the changes in structure and consumer behavior will keep Starbucks valuation very similar to its current valuation or slightly above at the most. For the next few quarters, the operating expense will be considerably higher than in the past, nevertheless I believe with the changes in their organization to adapt to consumer behavior will take back to normal operating expenses. I Used the FY2021 to calculate the multiple, as it looks past the effects of COVID. I don't believe the impact of COVID will sustain much longer, as the vaccines will return things to normal during the first part of 2021.
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.