SBUX - 4M 2019-05-15 (KDR) - Revised

Starbucks Corporation
SBUX
RESEARCHER/ANALYST: Gerard C. Khonghun

(serves as an example on 4M Analysis Report writing)
DATE: May 15, 2019
MEANING
Definition: Is it understandable, well within your Circle of Competence?
Starbucks:
Starbucks is a vertically integrated premium coffee retailing company.
They source their premium coffee beans, roast them and serve brewed specialty coffee mixes through their company owne
I understand how this company does business.
They have about 30,000 stores as of 2019 world wide. It’s a solid business with clear demand for premium coffee.
Market share of Starbucks is 57% of the total café market. They dominate this space. Period.
Solid ROIC numbers of 35% and above. This is far above its retail food competition having between 7% to 15% ROIC.
This company will continue to gush cash even if growth might slow down.
MISSION:
Starbucks mission is to be the "third place" between home and the office. "the Starbucks Experience" Not just selling coffe
By and large this has succeeded. They are the market leader, having started the premium coffee outlets.
Before Starbucks, there were coffee shops. Then Starbucks came and redefined the "coffee experience" by creating
a reliable and consistent coffee ambiance, innovative coffee hot and cold drinks, where people can linger, talk and meet.
Every other coffee company benchmarks against Starbucks.
MOAT
Definition: Does the company have sustainable competitive advantage over its competitors?
Is it INTRINSIC (it is built-in, or is in the nature of the company, the advantage cannot be separated from the company; and
Is it DURABLE (expensive or difficult to overcome the intrinsic advantage)
List of Moats: which of these is the Moat of this company?

(google: "What is the competitive advantage of ______?")
1. Brand YES Brand survey Ranking #57 Globally ; Brand v
2. Switching What industry standards makes it hard to swit
3. Network Effects What network effects dynamics make it hard to duplicate? How
4. Toll Bridge What is the toll bridge?
5. Secrets What are its proprietary technologies and patents?
6. Price How does it compete with the lowest price? What structure, org
MANAGEMENT
Definition: Is the company run by owner/shareholder-oriented CEO, who has integrity, talent, and honest
RISKS of the BUSINESS How they Management the Risk

1) Supply of arabica coffee beans Purchase commitments, Supply contract
2) Brand experience is not consistent Quality control, consistent training of em
3) Demand may go down due to economic recession, etc. Ability to maintain brand experience and
4) Incidents on food poisoning, poor quality, etc. Quality control systems for coffee, tea, w
INVESTMENT THESIS or Three Reasons to Own this Company
1. Starbucks is the café market industry benchmark and standard, and dominate leader with 57% of the market.
It will likely continue to dominate this space of coffee drinks category.
Even in a recession or downturn, demand will not disappear completely as shown in 2007-2009.
A recession will provide another stock buying opportunity after the stock market overreacts to short-term
lower demand from consumers who want to save money in a recession.
People will still want to socialize and meet friends, workmates, and clients.
2. The strong brand moat will continue to provide premium high margins, and they continue to look for premium
concepts like Starbucks Reserve Roastery, Teavana and others
The world is getting increasingly hooked on coffee for its morning pick-up, afternoon break, or evening after dinner drink.
STORY INVERSION and its REBUTTAL

(research outside analysts negative news and opinions on Starbucks
#1 Reason not to buy:
Growth is slowing down. US market is saturated with Starbucks with 14,000 outlets. Sto
REBUTTAL:
Growth globally is still very strong. With China and the rest of Asia continuing to be a p
Americas is only 68% of revnues, China and Asia is 18%, EMEA is 4% and Channels are
Americas is 17,454 stores, China and Asia is 8,530 stores. This means China and Asia c
What is the global potential projections?
Increasingly affluent Asian and Chinese middle class will want to drink Starbucks Coffee
Growth areas include licensed coffee drinks for supermarkets through Nestle. Starbuck
Revenues through licensing -- no capital required increase revenues. High ROIC!
#2 Reason not to buy:

Starbucks just recently added over US$4 Billion in debt (corporate bonds) to satisfy sha
They increased their debt load too much. At a time when a recession is looming.
REBUTTAL:
Cash position remains strong.
Debt as a percentage of cash position is actually growing down.
They will be able to manage and service their debts from cash flows.
Long term debt is equal to entire cash position.
SOURCE: MacroTrend.net SBUX Bala09/30/2018 09/30/2017 09/30/2016

Cash on Hand 8,937,800,000.00 2,690,900,000.00 2,263,200,000.00
Long term Debt 9,090,200,000.00 3,932,600,000.00 3,185,300,000.00
CASH% / DEBT% 98% 68% 71%
#3 Reason not to buy: 5

Long term threats: Is there a trend away from coffee?
Will smaller specialty one-of-a-kind coffee shops eat away Starbucks market share?
For example, McCafe -- is this a threat to Starbucks?
REBUTTAL:
There is actually a growing trend towards coffee consumption.
China and India are just about to join this trend, so it will keep growing.
GCK NOTES:
1) do back testing of Margin of Safety for Starbucks going back to 2007,2008, 2009 10-K vs. Stock price declines
through their company owned and licensed outlets.
for premium coffee.
ween 7% to 15% ROIC.
erience" Not just selling coffee.
xperience" by creating
e can linger, talk and meet.
ated from the company; and is not typically characteristic of other competitors?)
SOURCE:
Brand survey Ranking #57 Globally ; Brand value in US$B=9.4 Billion (by Interbrand)
Market share of Leading Coffee Players in the Coffee/Café Industry (Forbes)
ake it hard to duplicate? How many users?
ies and patents?

est price? What structure, organization?
and honest
Management the Risk

mmitments, Supply contracts, hedged purchase price of green coffee beans (page 12)
trol, consistent training of employees
aintain brand experience and preference over competition (page 16)
trol systems for coffee, tea, water, milk, and others (page 18)
7% of the market.
o short-term
o look for premium
evening after dinner drink.

bucks with 14,000 outlets. Stores cannibalize each other.
st of Asia continuing to be a place of expansion.

EMEA is 4% and Channels are 9%. Lots of room for growth.
This means China and Asia consumption is still catching up with Americas
ant to drink Starbucks Coffee.

kets through Nestle. Starbucks got $7 Billion prepaid royalties for this.
revenues. High ROIC!
rporate bonds) to satisfy share buybacks.

a recession is looming.
09/30/2015 09/30/2014
1,611,400,000.00 1,843,800,000.00
2,347,500,000.00 2,048,300,000.00
69% 90%
Starbucks market share?
keep growing.
s. Stock price declines
take note that the roic
of FINBOX.IO and Ycharts
are different from one another
RULE #1 Valuation Methods

RESEARCHER/ANALYST: Gerard C. Khonghun Update: Edited by Kate D. Del Rosario
Name of Company: SBUX

Date: May 15, 2019
Number of Shares Outstanding 1,382,700,000
BIG FIVE NUMBERS: (must growing at 10% per year consistently for 10 years, compare them to 1-year, 3-year, 5-year if its s
Looking at the Growth Rates of these companies (percentages)
Source: MSN Money or Yahoo Finance
(source: FINBOX.com/SBUX/explorer)
SBUX = 2018 10-Year
1. Return on Invested Capital (growth rate) 26.30%

2. Sales (growth rate) 9.06%
3. Earnings per Share (growth rate) 31.16%
4. Equity (growth rate)
5. Free Cash (growth rate)
* It is important to compare this against competitors in its market segment. E.g. Dell vs. Gateway; Walmart vs. Target vs. C
OWNER EARNINGS METHOD:

Definition: Profit Plus Changes in cash minus the cost to sustain the business (deducting
Net Profit $4,518,000,000.00
+ Depreciation & Amortization $1,305,900,000.00
+ Net Change in Accounts Receivable $131,000,000.00
+Net Change in Accounts Payable $3,916,000,000.00
+ Income Tax $1,262,000,000.00
+ Maintnenace Expenditures (this is a negative number, -$1,976,400,000.00
= OWNER EARNINGS (SUM TOTAL) $9,156,500,000.00
TEN-CAP METHOD:
= OWNER EARNINGS (SUM TOTAL) $9,156,500,000.00
Ten-Cap Price $91,565,000,000.00
PAYBACK TIME METHOD

Definition: Free cash flow, grown by the compounded Growth Rate for eight years.
Why 8 years? Charlie Munger says a fair price is about half of what the same private company would sell for a public comp
Public companies sell for about twelve to twenty years of free cash flow, about 16 years on average. Half of sixteen years is
Net Cash provided by Operating Activities $11,937,800,000.00

+ Purchase of Property and Equipment (a negative numb -$1,976,400,000.00
+ Any Other Capital Expenditures for maintenance and $0.00
= FREE CASH FLOW (more accurate) $9,961,400,000.00
Net Earnings or Net Profit $4,518,000,000.00

= FREE CASH FLOW (less accurate) $2,541,600,000.00
Sample:
Year Free Cash Flow
0 $9,961,400,000.00
1 $11,057,154,000.00
2 $12,273,440,940.00
3 $13,623,519,443.40
4 $15,122,106,582.17
5 $16,785,538,306.21
6 $18,631,947,519.90
7 $20,681,461,747.09
8 $22,956,422,539.26
MARGIN OF SAFETY METHOD:

Definition: Price of company within 10 years, accounting for Growth in EPS and PE multiple. Then discounted to present da
Encode this number
1. Earnings per Share (TTM EPS) $3.24
2. Growth Rate of EPS

a) Historical growth rates from year 2009-2015: 19.50%
b) Analyst average five-year growth estimate: 11%
c) The lower of 19.50% and 11% is: 11%
Therefore the Growth Rate is: 11%
3. Price to Earnings Ratio 11% x 2 = 22 PE
(Rule of thumb: Growth Rate% X 2 = PE)

SBUX had a range of P/E Ratios of 15 to 33 over the last ten years. The high was 33 PE.
Average PE is 24
Therefore PE is 24
Current PE of Starbucks is 33.2
4. Minimum Acceptable Rate of Return (MARR) 15%
Step One:
EPS x (1+ Growth Rate) (repeated 10 times)
= Future 10-Year EPS
Future - EPS
Year 0 $3.24
Year 1 $3.60
Year 2 $3.99
Year 3 $4.43
Year 4 $4.92
Year 5 $5.46
Year 6 $6.06
Year 7 $6.73
Year 8 $7.47
Year 9 $8.29
Year 10 $9.20
Future 10- Years EPS: $9.20
Step Two:
Future 10-Year Earnings Per Share X PE $9.20
= Future 10-Year Share Price $220.79
Step Three: Sticker Price

Future 10-Year Share Price / (1.15) Years = /4 $55.20
What is the future 10-Year share Price at a MARR of 15% $54.58
Excel Present Value Formula $54.58

=PV (rate, nper, pmt,[fv],type)
Step Four: Margin of Safety Price
Sticker Price / 2 [or 50% Margin of Safety] $27.60
Benjamin Graham's MOS Formula (countercheck) $27.60
Company Valuation: $75,463,266,320.52
ASSET METHOD:
What are the value of the assets? Cash, Land, etc., apart from its Profits or Earnings
for example
Number of Shares Outstanding: 1,382,700,000
Price as of Date: May 15, 2019 $77.76
Market Capitalization $107,518,752,000.00
ASSETS - Look Out

Cash (Balance Sheet) $8,756,300,000.00
Cash per Share $6.33
PPE net (Balance Sheet) $5,929,100,000.00

PPE per share $4.29
LIABILITIES - Watch Out

Long term Debt 9,090,200,000.00
Long term Debt per Share $6.57
SUMMARY DASHBOARD
Total Price of Business Price per Share
Ten-Cap Method $91,565,000,000.00 $66.22

Payback Time 8 Years $131,131,591,078.03 $94.84
Margin of Safety Method (Sticker P $75,463,266,320.52 $54.58
Margin of Safety Price $27.29
D. Del Rosario
shares (source: SBUX 10-K 2018)
ompare them to 1-year, 3-year, 5-year if its slowing down)
/SBUX/explorer)
5-Year 3- Year 1-Year 2017
34.97% 35.90% 45.17%

10.70% 8.86% 10.41%
217.77% 21.20% 64.47%
g. Dell vs. Gateway; Walmart vs. Target vs. Costco vs. Amazon(?)
Source: SBUX 10-K Year 2018 (FY ending Sep 30, 2018)
2018 Cash Flow Statement Line 2; page 73 (find it in Cash Flow statemepage 73 of SBUX 10-K 2018.pdf
2018 Cash Flow Statement Line 4 (find it in Cash Flow statemepage 73 of SBUX 10-K 2018.pdf
2018 Income Statement Line 20 (find it in Income Statement)page 73 of SBUX 10-K 2018.pdf
2018 Cash Flow Statement Line "Property, Plant and (find it in Cash flows from Invpage 73 of SBUX 10-K 2018.pdf
(add them whether they are negative or positive numbers)
Note: Ten-Cap price does not take into account growth rates of the company. It only accounts for Owner Earnings in 2015
Company Valuation
rivate company would sell for a public company.

16 years on average. Half of sixteen years is 8 years.
2018 Cash Flow Statement Line 19

Expected Growth in Free CashflowCumulative Free Cash Flow

Growth Rate to be applied the next Year and Payback Time Buy Price
11% $1,095,754,000.00 $9,961,400,000.00
11% $1,216,286,940.00 $11,057,154,000.00
11% $1,350,078,503.40 $23,330,594,940.00
11% $1,498,587,138.77 $36,954,114,383.40
11% $1,663,431,724.04 $52,076,220,965.57
11% $1,846,409,213.68 $68,861,759,271.79
11% $2,049,514,227.19 $87,493,706,791.68
11% $2,274,960,792.18 $108,175,168,538.77
11% $2,525,206,479.32 $131,131,591,078.03 <= 8 Year Payback Time Buy Price
Company Valuation
d PE multiple. Then discounted to present day, then 50% margin of safety

Source:
MacroTrends.Net (2018)
FY 2018
MacroTrends.Net (Calculated Compounding) 3.21
62.94%
Put this in Payback Time Growth Rate %
Rule #1 Toolbox (2019/05/15)
(if we want to change this %, it will increase the hurdle rate or lower it)
increasing this hurdle rate, will lower the Estimated Value of the company
which increases the effective Margin of Safety
1 + Growth Rate
111%
111%
111%
111%
111%
111%
111%
111%
111%
111%
111%
24
ESTIMATED VALUE OF COMPANY in 10 YEARS
VALUATION OF THE COMPANY TODAY (approximately)

(you can change the MARR to revise this calculation
MARGIN OF SAFETY PRICE
[(1+g)^10 * EPS * FuturePE] / 8.
Purchase price of the whole business
shares
2018 Balance Sheet Statement Line 2; page 71
2018 Balance Sheet Statement Line 10; page 71 Debt went up from $3,932,600,000 in 2017. WHY?
Rule #1
Meaning Moat Mgmt Predictability
DONE Score
DONE 62 76 93 0 68
DONE
DONE Date Symbol Price Change Change% Sticker
05/15/2019 SBUX 77.06 0.38 0.50% 88.32
ROIC from
Sep-08 Sep-09 Sep-10
(ycharts)
ROIC % 8.62% 10.62% 24.13%
Revenue from
(ycharts)
Revenue (in B) 10.38 9.78 10.71
Revenue % 9.57%
Compounded 9.06%
EPS diluted
from
(ycharts and
macrotrends)
EPS 0.215 0.26 0.62

EPS % 21% 138%
Compounded 31.16%
BUX 10-K 2018.pdf

BUX 10-K 2018.pdf
BUX 10-K 2018.pdf
BUX 10-K 2018.pdf
BUX 10-K 2018.pdf
BUX 10-K 2018.pdf
r Owner Earnings in 2015
yback Time Buy Price
FY 2017 FY 2016
1.97 1.92
2.60%
Source: MacroTrends.net Source: MacroTrends.net

Starbucks PE Ratio Historical Data Starbucks Annual EPS
TTM Net
Date Stock Price EPS PE Ratio Year EPS
5/15/2019 77.76 33.66 2018 3.24
3/31/2019 74.34 $2.31 32.18 2017 1.97
12/31/2018 64.07 $2.25 28.47 2016 1.9
9/30/2018 56.24 $3.21 17.52 2015 1.82
6/30/2018 48 $3.19 15.05 2014 1.35
3/31/2018 56.59 $3.05 18.55 2013 0.01
12/31/2017 55.83 $3.03 18.43 2012 0.9
9/30/2017 51.94 $1.97 26.36 2011 0.81
6/30/2017 56.13 $1.97 28.49 2010 0.62
3/31/2017 55.98 $2.01 27.85 2009 0.26
12/31/2016 52.99 $1.95 27.17 2008 0.22
9/30/2016 51.43 $1.90 27.07 2007 0.44
6/30/2016 54.07 $1.79 30.21 2006 0.36
3/31/2016 56.32 $1.69 33.32 2005 0.31
12/31/2015 56.44 $1.63 34.63
9/30/2015 53.27 $1.82 29.27
6/30/2015 50.11 $1.78 28.23
3/31/2015 44.11 $1.70 25.95
12/31/2014 38.08 $1.65 23.08
9/30/2014 34.88 $1.36 25.74
6/30/2014 35.65 $1.29 27.74
3/31/2014 33.68 $1.23 27.49
12/31/2013 35.84 $1.20 29.87
9/30/2013 35.08 $1.13 31.05
6/30/2013 29.77 $1.05 28.49
3/31/2013 25.8 $0.99 26.19
12/31/2012 24.2 $0.93 26.02
9/30/2012 22.79 $0.90 25.46
6/30/2012 23.87 $0.90 26.52
3/31/2012 24.94 $0.87 28.83
12/31/2011 20.46 $0.84 24.5
9/30/2011 16.52 $0.81 20.39
6/30/2011 17.43 $0.76 22.93
3/31/2011 16.25 $0.72 22.72
12/31/2010 14.07 $0.69 20.54
9/30/2010 11.14 $0.62 17.97
6/30/2010 10.54 $0.54 19.7
3/31/2010 10.49 $0.50 20.97
12/31/2009 9.96 $0.38 26.57
9/30/2009 8.92 $0.26 34.31
6/30/2009 6 $0.17 36.37

3/31/2009 4.8 $0.06 80
12/31/2008 4.09 $0.12 34.06
9/30/2008 6.42 $0.22 29.88
6/30/2008 6.8 $0.32 21.59
3/31/2008 7.56 $0.43 17.79
12/31/2007 8.84 $0.45 19.87
9/30/2007 11.32 $0.44 26.02
6/30/2007 11.34 $0.41 27.99
3/31/2007 13.55 $0.39 34.74
12/31/2006 15.3 $0.38 40.81
MOS PBT
44.16 10
Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
27.17% 26.11% 0.14% 31.57% 35.60% 31.94% 30.58%
11.70 13.28 14.87 16.45 19.16 21.31 22.39
9.24% 13.50% 11.97% 10.63% 16.47% 11.22% 5.07%

10.70% 8.86%
0.81 0.895 0.01 1.35 1.82 1.9 1.97

31% 10% -99% 13400% 35% 4% 4%
217.77% 21.20%
Calculated
Compound Compounding
Growth ing %
64% 3.210595917 19.7%
4% 2.682202103
4% 2.240770345
35% 1.871988592
13400% 1.563900244
-99% 1.306516495
11% 1.091492477
31% 0.911856706
138% 0.761785051
18% 0.636411905
-50% 0.531672436
22% 0.44417079
16% 0.37107
0.31
Sep-18
45.17%
Sep-18
24.72
10.41%
10.41%
Sep-18
3.24
64%
64.47%
RESEARCHER/ANALYST: Kate D. Del Rosario

Date: 29-May-19
Number of Shares Outstanding 766,114,000
(source: FINBOX.com/SBUX/explorer)
SBUX = 2006 10-Year
1. Return on Invested Capital (growth rate) - ave 13.67%

2. Sales (growth rate) - compounded 27.28%
3. Earnings per Share (growth rate) - compounded 55.12%

Net Profit $564,259,000.00
+ Depreciation & Amortization $412,625,000.00
+Net Change in Accounts Payable $104,966,000.00
+ Income Tax $324,770,000.00
+ Maintenance Expenditures (this is a negative number, -$771,230,000.00
= OWNER EARNINGS (SUM TOTAL) $653,090,000.00
TEN-CAP METHOD:
Ten-Cap Price $6,530,900,000.00
PAYBACK TIME METHOD


+ Purchase of Property and Equipment (a negative numb -$771,230,000.00
= FREE CASH FLOW (more accurate) $360,403,000.00
Net Earnings or Net Profit $564,259,000.00

= FREE CASH FLOW (less accurate) -$206,971,000.00
Sample:
Year Free Cash Flow
0 $360,403,000.00
1 $518,619,917.00
2 $746,294,060.56
3 $1,073,917,153.15
4 $1,545,366,783.38
5 $2,223,782,801.29
6 $3,200,023,451.05
7 $4,604,833,746.07
8 $6,626,355,760.59

Encode this number

b) Analyst average five-year growth estimate:
3. Price to Earnings Ratio 43.9% x 2 = 87.8 PE

Average PE is 24
Therefore PE is 24
Step One:
Future - EPS
Year 0 $0.38
Year 1 $0.55
Year 2 $0.79
Year 3 $1.13
Year 4 $1.63
Year 5 $2.34
Year 6 $3.37
Year 7 $4.86
Year 8 $6.99
Year 9 $10.05
Year 10 $14.47
Step Two:




ASSET METHOD:
for example
Number of Shares Outstanding: 766,114,000
Price as of Date: December 31, 2007 $8.84
ASSETS - Look Out

Cash (Balance Sheet) $312,606,000.00
PPE net (balance sheet) $2,287,899,000.00

PPE per share $2.99

Long term Debt $1,958,000.00
SUMMARY DASHBOARD
Total Price of Business Price per Share
Ten-Cap Method $6,530,900,000.00 $8.52

Payback Time 8 Years $20,539,193,673.09 $26.81
Margin of Safety Method (Sticker P $65,753,333,154.46 $85.83
Margin of Safety Price $42.91
shares (source: SBUX 2006 10-K) 2006 Income Statement Line 30; page 39
/SBUX/explorer)
17.27% 19.58% 21.28%

24.07% 24.08% 22.26%
43.92% 28.45% 132.79%
2006 Cash Flow Statement Line 2; page 41 (find it in Cash Flow statemepage 41 of SBUX 2006 10-K.pdf
No accounts receivable on Cash Flow Statement, its reflected in the Explanation page 56 of SBUX 2006 10-K.pdf
2006 Income Statement Line 18; page 39 (find it in Income Statement)page 23 of SBUX 2006 10-K.pdf
2006 Cash Flow Statement Line 28; page 41 (find it in Cash flows from Invpage 41 of SBUX 2006 10-K.pdf
Company Valuation

2006 Cash Flow Statement Line 21; page 41



44% $158,216,917.00 $360,403,000.00
44% $227,674,143.56 $518,619,917.00
44% $327,623,092.59 $1,264,913,977.56
44% $471,449,630.23 $2,338,831,130.71
44% $678,416,017.91 $3,884,197,914.10
44% $976,240,649.77 $6,107,980,715.38
44% $1,404,810,295.01 $9,308,004,166.44
44% $2,021,522,014.52 $13,912,837,912.50
44% $2,908,970,178.90 $20,539,193,673.09 <= 8 Year Payback Time Buy Price
Company Valuation

Source:
MacroTrends.Net (2006/12/31)
ycharts.com (Calculated Compounding); Data type is EPS Diluted (Annual)

cannot find data Comment: could not find any data on past analysis
Comment: this is not yet the correct PE; needs to check ycharts graph for the average
Rule #1 Toolbox (2006/12/31)
(if we want to change this %, it will increase the hurdle rate or lower it) DO NOT CHANGE THIS
1 + Growth Rate
144%
144%
144%
144%
144%
144%
144%
144%
144%
144%
144%
24


[(1+g)^10 * EPS * FuturePE] / 8.

shares
Macrotrends.net (refer table on the right)

Rule #1
Meaning Moat Mgmt Predictability
DONE Score
DONE 0 0 0 0 0
DONE
DONE Date Symbol Price Change Change%
05/15/2019 SBUX 77.06 0.38 0.50%
ROIC from
Sep-96 Sep-97
(ycharts)
ROIC % 8.24% 8.38%
Revenue from
Sep-96 Sep-97
(ycharts)
Revenue (in B) 0.70 0.98
Revenue % 39.76%
Compounded 27.28%
EPS diluted
Sep-96 Sep-97
from (ycharts)
EPS 0.0044 0.0053
EPS % 20%
Compounded 55.12%
BUX 2006 10-K.pdf

BUX 2006 10-K.pdf
BUX 2006 10-K.pdf Comment: Value from the Balance Sheet (line 5; page 40) is different from data stated
BUX 2006 10-K.pdf
BUX 2006 10-K.pdf
BUX 2006 10-K.pdf
r Owner Earnings in 2015
yback Time Buy Price
FY 2018 FY 2017 FY 2016

3.21 1.97 1.92
63% 3%
Source: MacroTrends.net
Starbucks PE Ratio Historical Data
Date Stock Price TTM Net EPS
5/15/2019 77.76
3/31/2019 74.34 $2.31
12/31/2018 64.07 $2.25
9/30/2018 56.24 $3.21
6/30/2018 48 $3.19
3/31/2018 56.59 $3.05
12/31/2017 55.83 $3.03
9/30/2017 51.94 $1.97
6/30/2017 56.13 $1.97
3/31/2017 55.98 $2.01
12/31/2016 52.99 $1.95
9/30/2016 51.43 $1.90
6/30/2016 54.07 $1.79
3/31/2016 56.32 $1.69
12/31/2015 56.44 $1.63
9/30/2015 53.27 $1.82
6/30/2015 50.11 $1.78
3/31/2015 44.11 $1.70
12/31/2014 38.08 $1.65
9/30/2014 34.88 $1.36
6/30/2014 35.65 $1.29
3/31/2014 33.68 $1.23
12/31/2013 35.84 $1.20
9/30/2013 35.08 $1.13
6/30/2013 29.77 $1.05
3/31/2013 25.8 $0.99
12/31/2012 24.2 $0.93
9/30/2012 22.79 $0.90
6/30/2012 23.87 $0.90
3/31/2012 24.94 $0.87
12/31/2011 20.46 $0.84
9/30/2011 16.52 $0.81
6/30/2011 17.43 $0.76
3/31/2011 16.25 $0.72
12/31/2010 14.07 $0.69
9/30/2010 11.14 $0.62
6/30/2010 10.54 $0.54
3/31/2010 10.49 $0.50
12/31/2009 9.96 $0.38
9/30/2009 8.92 $0.26
6/30/2009 6 $0.17
3/31/2009 4.8 $0.06
12/31/2008 4.09 $0.12
9/30/2008 6.42 $0.22
6/30/2008 6.8 $0.32
3/31/2008 7.56 $0.43
12/31/2007 8.84 $0.45
9/30/2007 11.32 $0.44
6/30/2007 11.34 $0.41
3/31/2007 13.55 $0.39
12/31/2006 15.3 $0.38
Sticker MOS PBT
88.32 44.16 10
8.96% 10.93% 8.41% 13.63% 13.55% 14.06% 17.05%
1.31 1.68 2.17 2.65 3.29 4.08 5.29
34.20% 28.34% 29.11% 22.13% 24.16% 23.93% 29.88%

24.07% 24.08%
0.0231 0.0338 0.03 0.0575 0.065 0.1675 0.1175

336% 46% -11% 92% 13% 158% -30%
43.92% 28.45%
page 40) is different from data stated on page 56

Source: ycharts.com
storical Data Starbucks Annual EPS (Diluted)
Calculated
PE Ratio Year EPS Growth Compounding
Compounding %
33.66 2006 0.355 133% 0.354790363 43.9%
32.18 2005 0.1525 30% 0.246553414
28.47 2004 0.1175 -30% 0.171336632
17.52 2003 0.1675 158% 0.119066458
15.05 2002 0.065 13% 0.0827425
18.55 2001 0.0575 0.0575
18.43
26.36
28.49
27.85
27.17
27.07
30.21
33.32
34.63
29.27
28.23
25.95
23.08
25.74
27.74
27.49
29.87
31.05
28.49
26.19
26.02
25.46
26.52
28.83
24.5
20.39
22.93
22.72
20.54
17.97
19.7
20.97
26.57
34.31
36.37
80
34.06
29.88
21.59
17.79
19.87
26.02
27.99
34.74
40.81
Sep-05 Sep-06
20.41% 21.28%
Sep-05 Sep-06
6.37 7.79
20.31% 22.26%
22.26%
Sep-05 Sep-06
0.1525 0.355
30% 133%
132.79%

Date: 29-May-19
(source: ycharts.com)
SBUX = 2007 10-Year


Net Profit $672,638,000.00
+Net Change in Accounts Payable $36,068,000.00
+ Income Tax $383,726,000.00
+ Maintenance Expenditures (this is a negative number, -$1,080,348,000.00
TEN-CAP METHOD:
Ten-Cap Price $5,339,220,000.00
PAYBACK TIME METHOD



Sample:
Year Free Cash Flow
0 $250,873,000.00
1 $278,469,030.00
2 $309,100,623.30
3 $343,101,691.86
4 $380,842,877.97
5 $422,735,594.54
6 $469,236,509.94
7 $520,852,526.04
8 $578,146,303.90

Encode this number



Average PE is 24
Therefore PE is 24
Step One:
Future - EPS
Year 0 $0.45
Year 1 $0.66
Year 2 $0.96
Year 3 $1.41
Year 4 $2.06
Year 5 $3.01
Year 6 $4.39
Year 7 $6.42
Year 8 $9.39
Year 9 $13.73
Year 10 $20.08
Step Two:




ASSET METHOD:
for example
ASSETS - Look Out


PPE per share $3.86

SUMMARY DASHBOARD
Total Price of Business
Ten-Cap Method $5,339,220,000.00

Payback Time 8 Years $3,302,485,157.56
Margin of Safety Method (Sticker P $89,298,277,721.59
Margin of Safety Price
18.70% 20.80% 20.72%

23.40% 21.14% 20.86%
46.26% 54.70% 22.54%
2007 Cash Flow Statement Line 2; page 44 (find it in Cash Flow stateme
No accounts receivable on Cash Flow Statement (find it in Cash Flow stateme
2007 Income Statement Line 18; page 42 (find it in Income Statement)
2007 Cash Flow Statement Line 28; page 44 (find it in Cash flows from Inv
Company Valuation




11% $27,596,030.00 $250,873,000.00
11% $30,631,593.30 $278,469,030.00
11% $34,001,068.56 $587,569,653.30
11% $37,741,186.10 $930,671,345.16
11% $41,892,716.58 $1,311,514,223.13
11% $46,500,915.40 $1,734,249,817.68
11% $51,616,016.09 $2,203,486,327.62
11% $57,293,777.86 $2,724,338,853.66
11% $63,596,093.43 $3,302,485,157.56

Source:

cannot find the data Comment: could not find any data on past analysis

Rule #1 Toolbox (2007/12/31)
1 + Growth Rate
146%
146%
146%
146%
146%
146%
146%
146%
146%
146%
146%
24


[(1+g)^10 * EPS * FuturePE] / 8.

shares
2007 Balance Sheet Statement Line 11; page 43 Debt is higher than the previous year. Find out why
Price per Share
Meaning Moat Mgmt
$7.12 DONE
$4.40 DONE 0 0 0
$119.10 DONE
$59.55 DONE Date Symbol Price
05/15/2019 SBUX 77.06
tement Line 30; page 42
ROIC from
(ycharts)
ROIC %
Revenue from
(ycharts)
Revenue (in B)
Revenue %
Compounded
EPS Diluted from

(ycharts)
EPS
EPS %
Compounded
page 44 of SBUX 2007 10-K.pdf

page 58 of SBUX 2007 10-K.pdf Comment: Value from the Balance Sheet (line 5; page 43) is different from data
y. It only accounts for Owner Earnings in 2015
me Buy Price
<= 8 Year Payback Time Buy Price

Company Valuation
FY 2018
3.21
63%
Starbucks PE Ratio Historical
Date
5/15/2019
3/31/2019
12/31/2018
9/30/2018
6/30/2018
3/31/2018
DO NOT CHANGE THIS 12/31/2017
9/30/2017
6/30/2017
3/31/2017
12/31/2016
9/30/2016
6/30/2016
3/31/2016
12/31/2015
9/30/2015
6/30/2015
3/31/2015
12/31/2014
9/30/2014
6/30/2014
3/31/2014
12/31/2013
9/30/2013
6/30/2013
3/31/2013
12/31/2012
9/30/2012
6/30/2012
3/31/2012
12/31/2011
9/30/2011
6/30/2011
3/31/2011
12/31/2010
9/30/2010
6/30/2010
3/31/2010
12/31/2009
9/30/2009
6/30/2009
3/31/2009
12/31/2008
9/30/2008
6/30/2008
3/31/2008
12/31/2007
9/30/2007
6/30/2007
3/31/2007
12/31/2006
an the previous year. Find out why

Rule #1
Predictability
Score
0 0
Change
Change Sticker MOS PBT
%
0.38 0.50% 88.32 44.16 10
8.38% 8.96% 10.93% 8.41% 13.63% 13.55% 14.06%
0.98 1.31 1.68 2.17 2.65 3.29 4.08
34.20% 28.34% 29.11% 22.13% 24.16% 23.93%

25.44% 23.40%
0.0053 0.0231 0.0338 0.03 0.0575 0.065 0.1675

336% 46% -11% 92% 13% 158%
55.39% 46.26%
(line 5; page 43) is different from data stated on page 58

FY 2017 FY 2016
1.97 1.92
3%
MacroTrends.net Source: ycharts.com

Starbucks PE Ratio Historical Data Starbucks Annual EPS (Diluted)
Stock Price TTM Net EPS PE Ratio Year EPS Growth
77.76 33.66 2007 0.435 22.54%

74.34 $2.31 32.18 2006 0.355 132.79%
64.07 $2.25 28.47 2005 0.1525 29.79%
56.24 $3.21 17.52 2004 0.1175 -29.85%
48 $3.19 15.05 2003 0.1675 157.69%
56.59 $3.05 18.55 2002 0.065
55.83 $3.03 18.43
51.94 $1.97 26.36
56.13 $1.97 28.49
55.98 $2.01 27.85
52.99 $1.95 27.17
51.43 $1.90 27.07
54.07 $1.79 30.21
56.32 $1.69 33.32
56.44 $1.63 34.63
53.27 $1.82 29.27
50.11 $1.78 28.23
44.11 $1.70 25.95
38.08 $1.65 23.08
34.88 $1.36 25.74
35.65 $1.29 27.74
33.68 $1.23 27.49
35.84 $1.20 29.87
35.08 $1.13 31.05
29.77 $1.05 28.49
25.8 $0.99 26.19
24.2 $0.93 26.02
22.79 $0.90 25.46
23.87 $0.90 26.52
24.94 $0.87 28.83
20.46 $0.84 24.5
16.52 $0.81 20.39
17.43 $0.76 22.93
16.25 $0.72 22.72
14.07 $0.69 20.54
11.14 $0.62 17.97
10.54 $0.54 19.7
10.49 $0.50 20.97
9.96 $0.38 26.57
8.92 $0.26 34.31
6 $0.17 36.37
4.8 $0.06 80
4.09 $0.12 34.06
6.42 $0.22 29.88
6.8 $0.32 21.59
7.56 $0.43 17.79
8.84 $0.45 19.87
11.32 $0.44 26.02
11.34 $0.41 27.99
13.55 $0.39 34.74
15.3 $0.38 40.81
Sep-04 Sep-05 Sep-06 Sep-07
17.05% 20.41% 21.28% 20.72%
5.29 6.37 7.79 9.41
29.88% 20.31% 22.26% 20.86%

21.14% 20.86%
0.1175 0.1525 0.355 0.435

-30% 30% 133% 23%
54.70% 22.54%
Annual EPS (Diluted)
Calculated
Compounding
Compounding %
0.4341604111 46.2%
0.2969633455
0.2031213033
0.13893386
0.09503
0.065

Date: 29-May-19
(source: ycharts.com)
SBUX = 2008 10-Year


Net Profit $315,500,000.00
+Net Change in Accounts Payable -$63,900,000.00
+ Income Tax $144,000,000.00
+ Maintenance Expenditures (this is a negative number, -$984,500,000.00
TEN-CAP METHOD:
Ten-Cap Price $562,000,000.00
PAYBACK TIME METHOD



Sample:
Year Free Cash Flow
0 $274,200,000.00
1 $288,184,200.00
2 $302,881,594.20
3 $318,328,555.50
4 $334,563,311.83
5 $351,626,040.74
6 $369,558,968.82
7 $388,406,476.23
8 $408,215,206.51

Encode this number



Average PE is 24
Therefore PE is 28.0833333333
Step One:
Future - EPS
Year 0 $0.12
Year 1 $0.13
Year 2 $0.13
Year 3 $0.14
Year 4 $0.15
Year 5 $0.15
Year 6 $0.16
Year 7 $0.17
Year 8 $0.18
Year 9 $0.19
Year 10 $0.20
Step Two:




ASSET METHOD:
for example
ASSETS - Look Out


PPE per share $4.04

SUMMARY DASHBOARD
Total Price of Business
Ten-Cap Method $562,000,000.00

Payback Time 8 Years $2,761,764,353.83
Margin of Safety Method (Sticker P $1,002,058,296.43
Margin of Safety Price
17.62% 16.87% 8.62%

20.56% 17.68% 10.30%
5.12% 12.13% -50.57%
No accounts receivable on Cash Flow Statement (find it in Cash Flow stateme
2008 Income Statement Line 20; page 45 (find it in Income Statement)
2008 Cash Flow Statement Line 27; page 47 (find it in Cash flows from Inv
Company Valuation




5% $13,984,200.00 $274,200,000.00
5% $14,697,394.20 $288,184,200.00
5% $15,446,961.30 $591,065,794.20
5% $16,234,756.33 $909,394,349.70
5% $17,062,728.90 $1,243,957,661.54
5% $17,932,928.08 $1,595,583,702.28
5% $18,847,507.41 $1,965,142,671.09
5% $19,808,730.29 $2,353,549,147.32
5% $20,818,975.53 $2,761,764,353.83

Source:

cannot find the data Comment: could not find any data on past analysis

Rule #1 Toolbox (2008/12/31)
1 + Growth Rate
105%
105%
105%
105%
105%
105%
105%
105%
105%
105%
105%
28.0833333333


[(1+g)^10 * EPS * FuturePE] / 8.

shares
2008 Balance Sheet Statement Line 12; page 46 Debt is slightly lesser than the previous year
Price per Share
Meaning Moat Mgmt
$0.77 DONE
$3.78 DONE 0 0 0
$1.37 DONE
$0.68 DONE Date Symbol Price
05/15/2019 SBUX 77.06
tement Line 32; page 45
2009-2017
ROIC from
(ycharts)
ROIC %
Revenue from
(ycharts)
Revenue (in B)
Revenue %
Compounded
EPS Diluted from

(ycharts)
EPS
EPS %
Compounded

page 62 of SBUX 2008 10-K.pdf Comment: Value from the Balance Sheet (line 5; page 46) is different from data s
y. It only accounts for Owner Earnings in 2015
me Buy Price
<= 8 Year Payback Time Buy Price

Company Valuation
FY 2018
3.21
63%
Starbucks PE Ratio Historical
Date
5/15/2019
3/31/2019
12/31/2018
9/30/2018
6/30/2018
3/31/2018
DO NOT CHANGE THIS 12/31/2017
9/30/2017
6/30/2017
3/31/2017
12/31/2016
9/30/2016
6/30/2016
3/31/2016
12/31/2015
9/30/2015
6/30/2015
3/31/2015
12/31/2014
9/30/2014
6/30/2014
3/31/2014
12/31/2013
9/30/2013
6/30/2013
3/31/2013
12/31/2012
9/30/2012
6/30/2012
3/31/2012
12/31/2011
9/30/2011
6/30/2011
3/31/2011
12/31/2010
9/30/2010
6/30/2010
3/31/2010
12/31/2009
9/30/2009
6/30/2009
3/31/2009
12/31/2008
9/30/2008
6/30/2008
3/31/2008
12/31/2007
9/30/2007
6/30/2007
3/31/2007
12/31/2006
esser than the previous year

Rule #1
Predictability
Score
0 0
Change
Change Sticker MOS PBT
%
0.38 0.50% 88.32 44.16 10
Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03
8.96% 10.93% 8.41% 13.63% 13.55% 14.06%
1.31 1.68 2.17 2.65 3.29 4.08
28.34% 29.11% 22.13% 24.16% 23.93%

23.01% 20.56%
0.0231 0.0338 0.03 0.0575 0.065 0.1675

46% -11% 92% 13% 158%
24.99% 5.12%
(line 5; page 46) is different from data stated on page 62

FY 2017 FY 2016
1.97 1.92
3%
MacroTrends.net Source: ycharts.com

Starbucks PE Ratio Historical Data Starbucks Annual EPS (Diluted
Stock Price TTM Net EPS PE Ratio Year EPS
77.76 33.66 2008 0.215

74.34 $2.31 32.18 2007 0.435
64.07 $2.25 28.47 2006 0.355
56.24 $3.21 17.52 2005 0.1525
48 $3.19 15.05 2004 0.1175
56.59 $3.05 18.55 2003 0.1675
55.83 $3.03 18.43
51.94 $1.97 26.36 Source: ycharts.com
Starbucks PE Ratio
56.13 $1.97 28.49 Historical Data
55.98 $2.01 27.85 Date PE Ratio
52.99 $1.95 27.17 12/31/2006 33.66
51.43 $1.90 27.07 12/31/2005 32.18
54.07 $1.79 30.21 12/31/2004 28.47
56.32 $1.69 33.32 12/31/2003 17.52
56.44 $1.63 34.63 12/31/2002 15.05
53.27 $1.82 29.27 12/31/2001 18.55
50.11 $1.78 28.23 12/31/2000 18.43
44.11 $1.70 25.95 12/31/1999 26.36
38.08 $1.65 23.08 12/31/1998 28.49
34.88 $1.36 25.74 12/31/1997 28.49
35.65 $1.29 27.74
33.68 $1.23 27.49
35.84 $1.20 29.87
35.08 $1.13 31.05
29.77 $1.05 28.49
25.8 $0.99 26.19
24.2 $0.93 26.02
22.79 $0.90 25.46
23.87 $0.90 26.52
24.94 $0.87 28.83
20.46 $0.84 24.5
16.52 $0.81 20.39
17.43 $0.76 22.93
16.25 $0.72 22.72
14.07 $0.69 20.54
11.14 $0.62 17.97
10.54 $0.54 19.7
10.49 $0.50 20.97
9.96 $0.38 26.57
8.92 $0.26 34.31
6 $0.17 36.37
4.8 $0.06 80
4.09 $0.12 34.06
6.42 $0.22 29.88
6.8 $0.32 21.59
7.56 $0.43 17.79
8.84 $0.45 19.87
11.32 $0.44 26.02
11.34 $0.41 27.99
13.55 $0.39 34.74
15.3 $0.38 40.81
28.083333333
Sep-04 Sep-05 Sep-06 Sep-07 Sep-08
17.05% 20.41% 21.28% 20.72% 8.62%
5.29 6.37 7.79 9.41 10.38
29.88% 20.31% 22.26% 20.86% 10.30%

17.68% 10.30%
0.1175 0.1525 0.355 0.435 0.215

-30% 30% 133% 23% -51%
12.13% -50.57%
Starbucks Annual EPS (Diluted)
Calculated
Growth Compounding
Compounding %
-50.57% 0.2147970891 5.1%

22.54% 0.2043740143
132.79% 0.1944567215
29.79% 0.1850206675
-29.85% 0.1760425
0.1675
C
Ticker Name
NASDAQGS:WEN The Wendy's Company

NYSE:ARMK Aramark
NASDAQGS:CAKE The Cheesecake Factory Incorporated
NYSE:CMG Chipotle Mexican Grill, Inc.
NASDAQGS:DNKN Dunkin' Brands Group, Inc.
NASDAQGS:PZZA Papa John's International, Inc.
NYSE:MCD McDonald's Corporation
NYSE:DRI Darden Restaurants, Inc.
NASDAQGS:CBRL Cracker Barrel Old Country Store, Inc.
SBUX Starbucks Corporation
NYSE:YUM YUM! Brands, Inc.
SECTOR:DSCY Consumer Discretionary
May 15, 2019
Return on
Invested Capital
5.10%
5.90%
8.60%
10.20%
12.20%
12.60%
19.70%
20.10%
20.60%
35.80% Very high ROIC
46.10%
EXPENSIVE ERRORS CHECKLIST
MEANING YES/NO REMARKS

1. On edge or outside Circle of Competence
2. No Gurus buying
3. Not a business I enjoy studying
4. Industry of company or product is not easy to understand
5. Did not do inversion
6. Industry on the decline
7. Unfriendly union
8. Demand for the product in ten years is uncertain
9. Industry rate of change is high
10. Did not read ten years of foot notes in 10-K
MOAT
1. Moat is not instrinsic
2. Moat is not durable
3. Moat is not being widened
4. Big Four Numbers are not Growing
5. Book value (plus dividends), in particular, is not growing
6. Owner Earnings and free cash flow are not predictable
7. Cheap foreign competition getting stronger but hasn't reached U.S. industry yet.
MANAGEMENT
1. ROE and ROIC are going down
2. CEO does not act like an owner
3. CEO puts self first
4. CEO selling too much stock
5. Company buying back stock well above value
6. CEO recently replaced
7. Debt more than two years free cash flow
8. Debt increasing
9. Loan to expire soon
10. Loan covenants close to being breached by company
PRICING
1. Can't confidently calculate Owner Earnings
2. Pay more than the Ten Cap price, or
3. Pay more than the Eight-Year Payback Time price, or
4. Pay more than the Margin of Safety price
5. Temporary issues making earnings and/or free cash growth/losses abnormal
6. Earnings-Per-Share growth engineered via buybacks
7. Future growth rate and future P/E estimates not realistic
8. There is no Event, and no price drop
9. Price dropped but not enough of an Event to go on sale
10. Event produces significant fear but may not resolve itself in one to three years
11. Event may permanently damage the business
12. Can't understand the Event -- too complex.

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Starbucks Corporation

RESEARCHER/ANALYST: Gerard C. Khonghun

List of Moats: which of these is the Moat of this company?

RISKS of the BUSINESS How they Management the Risk

INVESTMENT THESIS or Three Reasons to Own this Company

STORY INVERSION and its REBUTTAL

#2 Reason not to buy:

SOURCE: MacroTrend.net SBUX Bala09/30/2018 09/30/2017 09/30/2016

#3 Reason not to buy: 5

through their company owned and licensed outlets.

for premium coffee.

ween 7% to 15% ROIC.

erience" Not just selling coffee.

ies and patents?

Management the Risk

o look for premium

evening after dinner drink.

st of Asia continuing to be a place of expansion.

ant to drink Starbucks Coffee.

rporate bonds) to satisfy share buybacks.

Starbucks market share?

RULE #1 Valuation Methods

Name of Company: SBUX

SBUX = 2018 10-Year

1. Return on Invested Capital (growth rate) 26.30%

OWNER EARNINGS METHOD:

PAYBACK TIME METHOD

Net Cash provided by Operating Activities $11,937,800,000.00

Net Earnings or Net Profit $4,518,000,000.00

MARGIN OF SAFETY METHOD:

2. Growth Rate of EPS

Therefore the Growth Rate is: 11%

3. Price to Earnings Ratio 11% x 2 = 22 PE

(Rule of thumb: Growth Rate% X 2 = PE)

4. Minimum Acceptable Rate of Return (MARR) 15%

Future 10- Years EPS: $9.20

Step Three: Sticker Price

Excel Present Value Formula $54.58

Company Valuation: $75,463,266,320.52

Price as of Date: May 15, 2019 $77.76

Market Capitalization $107,518,752,000.00

ASSETS - Look Out

PPE net (Balance Sheet) $5,929,100,000.00

LIABILITIES - Watch Out

Ten-Cap Method $91,565,000,000.00 $66.22

shares (source: SBUX 10-K 2018)

ompare them to 1-year, 3-year, 5-year if its slowing down)

5-Year 3- Year 1-Year 2017

34.97% 35.90% 45.17%

rivate company would sell for a public company.

2018 Cash Flow Statement Line 19

2018 Cash Flow Statement Line 2

Expected Growth in Free CashflowCumulative Free Cash Flow

d PE multiple. Then discounted to present day, then 50% margin of safety

Put this in Payback Time Growth Rate %

Rule #1 Toolbox (2019/05/15)

VALUATION OF THE COMPANY TODAY (approximately)

Purchase price of the whole business

2018 Balance Sheet Statement Line 2; page 71