First Cut Stock Study Report

Transcription

1 First Cut Stock Study Report Company Name: Starbucks Corporation Ticker: SBUX Date of Study: 3/15/2017 Price: $ Your Name: address: Dene M. Alden dalden@one.net City: Loveland State: Ohio Chapter Name (if applicable): OKI Tri-State Chapter Discuss why you consider this to be a high quality, growth company that should be investigated further. Please include comments on historical sales and EPS growth, pre-tax profit margin, return on equity, and debt. The advent of the laptop and mobile computing culture has created a major community for the religion of caffeine which spawned, nurtured and grown the giant called Starbucks! This Seattle-based company s history of growth starts with the purchase by Howard Schultz in 1987 of 17 shops (original shop opened in the Pike Place Market area in 1971 with its name inspired by first mate in Herman Melville s MOBY DICK, evoking the romance of the high seas and tradition of the early coffee traders). The current Value Line shows 8,505 company-operated stores in 2007 expanding to 16,300 in another five years. Sales per share are projected to triple, with current 2016 Return on Total Capital at 31.6% and 2016 Return on Shareholder Equity of 48.2%. Debt is now around 35% of capital; EPS has moved from 12 cents in 2010 to $2.10 projected for Value Line reports Starbuck s has A++ Financial Strength and very high numbers in quality price stability, growth persistence and earnings predictability. Briefly describe how the company makes money: Starbuck's company stores are the major source (79%) of revenues which feature a retail mix of beverages, food and packaged coffee and teas. The company makes most (69%) of its money near home in the USA, Canada and Latin America. Followed by 13% in the Far East, 6% in Europe, Middle East and Africa. The company also pursues channel development with partnerships and distributions to expand growth of their branded products. Projected growth rate for sales: 6.7% Why did you select this rate? Discuss from where future growth will come. This is a very low, conservative number and the same as the most recent quarter reported. ACE two year est. is 8.8%; SBUX management issued 2017 guidance of 8 to 10%. This 2017 management guidance is comparable to an older more mature business model and size of company. This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors should always conduct their own analysis before making an investment decision. This report may reference websites, products or services not endorsed by BetterInvesting and that may require usage fees. The preparer(s) of this report is not endorsing or promoting the use of these websites, products or services.

2 Projected growth rate for earnings per share: 10% Why did you select this rate? This is in line with the guidance issued for 2017 by management and reflective of past history of EPS in relation to sales. Projected High P/E: 30 Why did you select this value? Even after removing all the outliers of 2013 (litigation settlement), the high P/E is I do not feel with the maturity of this business should allow a P/E over 30. Projected Low P/E: 23 Why did you select this value? I left the low P/E alone since the company has history of high valuations and a reduction in the amount of price variations in recent years (Value Line gives it a "SAFETY" of 1). Projected Low Price: $44.9 Why did you select this value? This is from 4B(a), where Avg. Low P/E 23.0 x Estimate Low Earnings/Share of 1.95 Forecasted Low Price of $44.9 and is standard selection for a growth stock. In addition, it is close to the price supported by the dividend (46.5) and is about 20% below present price. At the current price, the stock is a (check one): Buy or Hold or Sell At the current price, the upside-downside ratio is: 3.8 to 1 Compound Annual Return Using Forecast High P/E: 12.2% Your final recommendation (check one): Explain: Buy or Hold or Sell After studying this quality company and noting that the current P/E and the Average P/E are so close (I would prefer to see current P/E lower than average P/E), this may be a possible entry point created by nervous investors due to founder Howard Schultz stepping down (new CEO Kevin Johnson starts in April, 2017) and operational mis-steps in the aggressive rollout of "MOP" (Mobile Order and Pay checkout). Softness has showed up in the most recent quarter; however their five year plan outlines many ways of continuing growth for this outstanding, high-quality company. This retail This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors should always conduct their own analysis before making an investment decision. This report may reference websites, products or services not endorsed by BetterInvesting and that may require usage fees. The preparer(s) of this report is not endorsing or promoting the use of these websites, products or services.

3 company in the Discretionary Sector has a wide moat and an exemplary stewardship rating. This stock study reflects the judgment of the contributor(s) only and no investment recommendation is intended. Investors should always conduct their own analysis before making an investment decision. This report may reference websites, products or services not endorsed by BetterInvesting and that may require usage fees. The preparer(s) of this report is not endorsing or promoting the use of these websites, products or services.

4 Stock Selection Guide Company Starbucks Date 03/13/17 Prepared by MILLER ALDEN Data taken from BI Stock Data Where traded NAS Industry Restaurants Capitalization --- Outstanding Amounts Reference Preferred ($M) 0.0 % Insiders % Institution Common (M Shares) 1, Debt ($M) 3,185.7 % to Tot Cap 35.5 % Pot Dil VISUAL ANALYSIS of Sales, Earnings, and Price Symbol: SBUX FY 2017 Q1 Latest Quarter Year Ago Quarter Percentage Change Sales ($M) 5,733 5, % Earnings Per Share % (1) Historical Sales Growth 9.8% (3) Historical Earnings Per Share Growth 26.0% (2) Estimated Future Sales Growth 6.7% (4) Estimated Future Earnings Per Share Growth 10.0%

5 2 EVALUATING Management 5 5-YEAR POTENTIAL This combines price appreciation with dividend yield to get an estimate of total return. It provides a standard for comparing income and growth stocks. A Indicated Annual Dividend Closing Price B AVERAGE YIELD - USING FORECAST HIGH P/E Avg. % Payout 38.4 % 1.3 % Forecast High PE C COMPOUND ANNUAL RETURN - USING FORECAST HIGH P/E Annualized Appreciation Average Yield Annualized Rate of Return 10.9 % 1.3 % 12.2 % % Current Yield AVERAGE YIELD - USING FORECAST AVERAGE P/E Avg. % Payout 38.4 % 1.4 % Forecast Average PE COMPOUND ANNUAL RETURN - USING FORECAST AVG P/E Annualized Appreciation Average Yield Annualized Rate of Return 8.2 % 1.4 % 9.7 % Starbucks Last 5 Year Avg. Pre-tax Profit on Sales 11.2% 4.4% 5.7% 13.4% 15.5% 15.5% -1.5% 19.2% 20.4% 19.7% 14.7% % Earned on Equity 27.3% 12.7% 12.7% 25.0% 27.6% 24.9% 0.1% 40.1% 46.2% 48.7% 32.0% % Debt To Capital 35.6% 33.7% 15.3% 13.0% 11.1% 9.7% 22.5% 28.0% 28.7% 38.0% 25.4% 3 PRICE-EARNINGS HISTORY as an indicator of the future This shows how stock prices have fluctuated with earnings and dividends. It is building block for translating earnings into future stock prices. CLOSING PRICE (03/13/17) HIGH THIS YEAR LOW THIS YEAR A B C D E F G H Year Price Earnings Price Earnings Ratio Dividend % Payout % High Yield High Low Per Share High A / C Low B / C Per Share F / C * 100 F / B * , , , AVERAGE CURRENT/TTM AVERAGE PRICE EARNINGS RATIO: 27.9 CURRENT PRICE EARNINGS RATIO: EVALUATING RISK and REWARD over the next 5 years Assuming one recession and one business boom every 5 years, calculations are made of how high and how low the stock might sell. The upside-downside ratio is the key to evaluating risk and reward. A HIGH PRICE - NEXT 5 YEARS Avg. High P/E 30.0 X Estimate High Earnings/Share 3.06 Forecasted High Price $ 91.8 B LOW PRICE - NEXT 5 YEARS (a) Avg. Low P/E (b) Avg. Low Price of Last 5 Years (c) Recent Market Low Price (d) Price Dividend Will Support 23.0 X Estimate Low Earnings/Share 1.95 Forecasted Low Price $ Indicated Dividend High Yield Selected Forecasted Low Price $ 44.9 C ZONING using 25%-50%-25% Forecasted High Price 91.8 Minus Forecasted Low Price Range. 25% of Range 11.7 Buy Zone Hold Zone Sell Zone % 44.9 to to to 91.8 Present Market Price of is in the BUY Zone D UPSIDE DOWNSIDE RATIO (POTENTIAL GAIN VS. RISK OR LOSS) High Price 91.8 Minus Present Price Present Price Minus Low Price To 1 E PRICE TARGET (Note: This shows the potential market price appreciation over the next five years in simple interest terms.) High Price Closing Price X % Appreciation

6 Study Notes Subject Sales estimates from Mgt 2017 Guidelines Description They predict sales at 8% to 10%. Picked lower number which matches recent quarter. Est Earnings per share P/E Outliers Removed litigation settlement outlier for Value Line's projection is $3.75 four to five years out, but used a much more conservative number for possible problems with getting MOP to work and possible slower world growth. High P/E Despite high P/Es of this company, I prefer to use a P/E no higher than 30. Low Price Judgment Used the standard "growth" selection on Section 4, B (a) where Avg. Low P/E 23.0 x Estimate Low Earnings / Share of 1.95 Forecast Low Price of $44.9. It is also close to the price the dividend would support and is approx. 20% less than present price.