Starbucks Corp (NASDAQ:SBUX) Earnings Model
Author: Tomas Salinas, Published: October 23, 2021 Category: Earnings Preview (Prior to the F4Q2021 SBUX Results)
Notes From the Model Developer: I believe that the Americas Segment inflation for the next couple of years will be higher than expected, so the wages and benefits, strategic investments, technology, and environmental sustainability expenses should be higher. In addition, I believe that the SBUX product offerings, macroeconomic and competitive conditions will be positive for the next couple of years, but less than the expected rate, staying in the management guidance range, the comp stores sales will be lower than expected in the Americas Segment.
Valuation: I used P/E and EV/EBITDA multiples to value the SBUX Shareholders Equity:
- P/E: Based on the sum of the next 4 quarters of Non-GAAP diluted EPS coming from the earnings model for 3Q21E, 4Q21E, 1Q22E, and 2Q22E multiply by the 31.4 times ratio coming from the valuation (NTM), assuming there are no other related companies valued inside SBUX (no-adjustments). So, the Implied P/E 12-month target value is $114. Compared with the Implied DCF 12-month target value of B$112, the implied target price band should be between $105 and $126 with a standard deviation of 4.52% and a monthly return mean of 2.36%.
- EV/EBITDA: Consist in the forecasted EBITDA of 2023 of $8,331M, adding amortization and depreciation of the same period. Assuming a price of $117 (average EPS calculated for the same period) and the shares outstanding of 1.169M from the earnings model we get the estimated Equity Value of $136.8. Adding $11.6 in debt and $2.8 in cash and investments, the enterprise value of SBUX is $145.6, divided by the EBITDA describe above, the implied FY23 EV/EBITDA ratio is 17.5x. So, if we follow the same methodology as P/E, the Implied EV/EBITDA 12-month target value is $123, compared with the Implied DCF 12-month target value of $112, the implied target price band should be in between $109 and $131 with a standard deviation of 4.52% and a monthly return mean of 2.36%.
Equity Risk Premium Forecast Assumptions: As my first Forecast opinion in SBUX, I believe that the Americas inflation for the next couple of years will be higher than expected, so the wages and benefits, strategic investments, technology, and environmental sustainability expenses should be higher. My ERP Model input adjustments based on this thesis are as follows:
- Variable 1: Treasury Spreads will decrease over the next couple of years since it is probable that the Fed will increase the interest rate to incentivize the demand and in the end avoid the inverted curve.
- Variable 2: Market Volatility will increase since there is more uncertainty in macroeconomics projections, S&P500 STDEV will remain the same, but the Sharpe ratio will decrease to 0.363 (from 0.383).
- Variable 3: In the same way, it would be pressure on the Fed to increase the rate, so I assumed it will be at 0.25%.
- Variable 4: By consequence, the market returns for the rest of 2021 and the next couple of years will be less than expected (around 5% each year).
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.