Is Starbucks Undervalued?

by Trefis Team
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Yes, Starbucks (NASDAQ: SBUX) looks undervalued. As per Trefis, the price estimate of Starbucks’ stock is $95, which is 13% higher than its current market price.

Starbucks is a Seattle-based company which purchases and roasts high-quality coffees that they sell, along with handcrafted coffee, tea, and other beverages and a variety of high-quality food items through company-operated stores and Licensed Stores. Starbucks FY 2019 (ended September 2019) results are expected on 30th October 2019. Consensus expectations of Total Revenue is $26.4 billion while earnings are expected to be around $2.83 for the year.

Trefis has a price estimate of $95 for Starbucks’ stock. We have detailed the key components of Starbucks’ Valuation in an interactive dashboard, along with our forecast for the full year 2019. In addition, here is more Consumer Discretionary data.

 

#1 Estimating Starbucks’ Revenues

  • Total Revenue has seen a constant increase over the years from $21.3 billion in 2016 to $24.7 billion in 2018. Trefis estimates Total revenue to reach around $27.3 billion in FY 2019.
  • Revenue from company operated stores is the highest contributor to total revenue and has seen tremendous growth over the years. The segment revenue has increased from $16.8 billion in 2016 to $19.7 billion in 2018. Trefis estimates revenue from the segment to be around $22.9 billion in FY 2019.
  • Revenue from Licensed Stores segment has seen a good growth the past few years as the company continues to add stores. The segment revenue grew from $2.2 billion in 2016 to $2.7 billion in 2018. Trefis estimates revenue from the segment to be around $2.8 billion in FY 2019.
  • Revenue from Consumer Packaged Goods segment has seen a stable growth the past few years. The segment revenue grew from $2.3 billion in 2016 to $2.4 billion in 2018. After the deal with Nestle, Trefis estimates revenue from the segment to be around $1.5 billion in FY 2019.

#2 Estimating Starbucks’ Net Income

  • Net Income has shown good growth on the back of Total revenue and EBITDA. Net income increased from $2.8 billion in 2016 to $4.5 billion in FY 2018. For further information regarding EBITDA margins please visit our Dashboard – Starbucks’ Valuation.

#3 Deriving Starbucks’ EPS Figure

  • Starbucks has regularly invested in share repurchases to boost shareholder returns. Shares outstanding are likely to be around 1.4 billion at the end of FY 2019.
  • This would enable it to report an EPS figure of $3.08 in 2019.

#4 Estimating Starbucks’ Share Price using P/E multiple

  • We expect Starbucks to achieve earnings of $3.08, which coupled with our implied P/E multiple of 30.8x works out to a price estimate of $95.

 

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