Starbucks Corporation Case Study
Starbucks Corporation is an American coffee company and coffeehouse chain. Starbucks was founded in Seattle, Washington in 1971. As of November 2016, it operates in 23,768 locations worldwide, including 13,107 (+170) in the United States, 2,204 (+86) in China, 1,418 (-12) in Canada, 1,160 (+2) in Japan, and 872 in South Korea (bumping United Kingdom from the 5th place) (Differences reflect growth since January 8, 2016).
Starbucks first became profitable in Seattle in the early 1980s, and despite an initial economic downturn with its expansion into the Midwest and British Columbia in the late 1980s, the company experienced revitalized prosperity with its entry into California in the early 1990s. The first Starbucks location outside North America opened in Tokyo in 1996; overseas properties now constitute almost one third of its stores. The company opened an average of two new locations daily between 1987 and 2007.
On December 1, 2016, Howard Schultz announced he would resign as CEO effective in April 2017 and will be replaced by Kevin Johnson.
Final – Due Week 7 of the Course
A. Forecast Development Tab – Sales Revenue Forecast Development
- As an analyst, how would you analyze the sales growth projections of Starbucks?
- How many years into the future would you as an analyst be willing to commit to in the sales forecast?
- Going back to the risks, what are the external factors that could change (increase or decrease) the sales revenue forecasts of Starbucks?
B. Forecast Development Tab – Foreign Operations. CPG and CAP (Segments)
- Which region/market is growing the fastest? Which is the most profitable? As an analyst, would you invest in the fastest growing or most profitable segment?
- What method will Starbucks use to translate its foreign subsidiaries’ financial statements so that they can be consolidated?
C. Forecast Development Tab – Capital Expenditures, FF&E
- As an analyst, what can you ascertain from the capital expenditure forecasts? Is this good or bad?
- As an analyst, what can you ascertain from the FF&E forecasts? Is this good or bad?
D. Valuation Tab – Valuation Parameter Assumptions
- In the parameters, as an analyst, what are the most important variables and why?
- Are dividends an important variable in the valuation of Starbucks?
E. Valuation Tab – Estimated Value per Share
Describe each of the following and identify strengths and weaknesses in each. Why are there so many different valuations?
- Dividend Based Valuation
- Free Cash Flow Valuation
- Residual Income Valuation
- Residual Income Market-to-Book Valuation
- Free Cash Flow for All Debt and Equity Valuation
- Intrinsic Valuation
- Market Based Valuation
F. Valuation Tab – General Questions
- What is the actual Beta of Starbucks (research required)? Why is Beta important data?
- On our Course Excel Spreadsheet, the estimated (Intrinsic) value per share is $63.55. Assuming this is correct and calculated on the same day as the market value of Dec. 30th 2016 of $52.52 (picture on Page 1), what would be your recommendation as an analyst to the market?
BALANCE SHEET ITEMS: GROWTH RATES
Year 2008 2009 2010 2011 2012
Assets: YEAR TO YEAR GROWTH RATES: RATE
Cash and cash equivalents -4.1% 122.3% 94.1% -1.4% 3.5% 33.4%
Marketable securities -66.6% 26.3% 330.9% 215.9% -6.0% 40.1%
Accounts and notes receivable – net 14.4% -17.8% 11.7% 27.7% 25.7% 11.0%
Inventories 0.2% -4.0% -18.3% 77.8% 28.5% 12.4%
Prepaid expenses and other current assets 13.7% -13.0% 6.3% 3.2% 21.7% 5.7%
Deferred tax assets – current 80.8% 22.4% 6.1% -24.3% 3.6% 13.0%
Other current assets (1)
Other current assets (2)
Current Assets 3.0% 16.5% 35.4% 37.7% 10.7% 19.9%
Investments in noncontrolled affiliates 16.9% 16.4% -3.1% 9.0% 23.5% 12.2%
Property, plant, and equipment – at cost 7.7% -0.3% 3.3% 4.7% 12.0% 5.4%
14.3% 14.6% 9.7% 9.7% 11.5% 11.9%
Amortizable intangible assets (net) 25.3% -1.7% 29.6% -1.8% -5.8% 8.1%
Goodwill 23.6% -2.8% 1.3% 22.6% 24.1% 13.1%
Other nonamortizable intangible assets
Deferred tax assets – non current
Long-term investments 240.0% -0.3% 169.4% -44.2% 8.4% 40.7%
Total Assets 6.1% -1.7% 14.5% 15.3% 11.7% 9.0%