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Rutger Choquehuanca

Andrew Simpson
Dorothy Lee
Suleman Alshuabey
Felipe Villagrana

Starbucks - Market and


Industry Analysis
First Starbucks opened in 1971 in
Seattle.
Starbucks hired a Director of Retail
Operations, Howard Schultz.
In one year, Starbucks sold to Howard
Schultz.

Starbucks - Size and Line of


Business
22,000 locations around the
world
191,000 full time employees.
Operating in 62 countries.

Starbucks - Position in the


Industry

Starbucks - Major Changes in


Recent Years

Starbucks 2016
Growth
Leader
New delivery system

Starbucks DuPont Analysis


Profit margin for SBUX is not steady as
MCD
MCD profit margin decreasing over the
years
SBUX grew up until 2013
SBUX recovered in 2014 drastically
SBUX low profit margin because use of
high quality products

Starbucks DuPont Analysis


SBUX vs McDonalds
SBUX maintained a higher
turnover the past five years
SBUX similar to restaurant
industry
More efficient in its operating
activities than MCD

Starbucks DuPont Analysis


Financial leverage for SBUX is
below MCD
MCD financial leverage above
SBUX
2013 increase due to rise of
interest burden
MCD steady and consistent

Starbucks DuPont Analysis


SBUX has a higher retention
rate
Pay out less of their net income
as dividends
Keep a higher percentage of
their funds
Decreasing over the years due
to slowing growth but more
stable

Starbucks Financial Ratios

Starbucks Financial Ratios

Starbucks Financial Ratios

Free Cash Flow Analysis


Lost litigation battle
resulting in over a $2.7
billion loss
Reinstated their
plowback ratio of over
20%
10 years until mature
stage

Free Cash Flow Analysis

Plowback ratio will remain


constant at 23.5%
Growth rate declines to
8.23%

Free Cash Flow Analysis


Median ROE of Industry
is 32.15%
Plowback ratio of 20% at
maturity
Growth rate for SBUX in
2025 is 6

FCFF and FCFE

Systematic Risk and the CAPM


Beta - The measurement of volatility or
systematic risk
A stock with a beta of 1 moves in sync
with the market
A stock with a beta of -1 will move in the
opposite direction of the market

Calculating Beta
Calculate 60 months of
returns for SBUX
Calculate 60 months of
returns for SPY
Has 500 of the largest
traded companies
Provides a better overall
market comparison than
other indices

Calculating Beta (contd)

Beta/Slope = 0.7377
R-squared = describes how
much of the sample is
explained through the
regression

Security Market Line


The security market line is a
graphical representation of
the expected return to beta
relationship of the market.

Rf rate is based on average


monthly return for the 3month US T-bills for the last
60 months
Expected return on the
market was calculated by
finding the average monthly
return for SPY over the last 60
months

Security Market Line (contd)

Valuation -Free Cash Flow Models


Parameters

Free Cash Flow for Firm

Free Cash Flow for Equity

Conclusions
FCFF: 64.03
FCFE: 63.99
Current Price (12/1/15): 61.25
Undervalued - BUY!

Questions or Comments?