Valuation of starbucks using residual enterprise income
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Valuation of Starbucks Using Residual Enterprise Income. Mitchell Schmitt. Relevant Facts. CEO is Howard Schultz (Highly Regarded) Headquartered in Seattle, WA $13.3 B in revenues in 2012 with operating margins of 15% Nearly 80% of stores are company-owned vs. franchised

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Valuation of Starbucks Using Residual Enterprise Income

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Valuation of starbucks using residual enterprise income

Valuation of Starbucks Using Residual Enterprise Income

Mitchell Schmitt


Relevant facts

Relevant Facts

  • CEO is Howard Schultz (Highly Regarded)

  • Headquartered in Seattle, WA

  • $13.3 B in revenues in 2012 with operating margins of 15%

  • Nearly 80% of stores are company-owned vs. franchised

  • SBUX has paid a dividend for the past 12 quarters


Strategy

Strategy

Mission Statement: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

  • Product Differentiation; Sell premium products with large profit margins

  • Outstanding Marketing Campaigns

  • Repeat Business (Starbucks cards)

  • Keep Employees Satisfied

  • Make entering their stores an experience

  • Company Operated stores


Products

Products

Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world

  • Frappuccino, Lattes, Iced Coffees, Espresso

  • Also sell tea, other beverages, and fresh food items

  • Sell packaged products through licensed stores, grocery stores, and other foodservice accounts

  • K-Cups and Coffee Grounds


Competition

Competition

  • Premium coffee sales compete against quick service restaurants and specialty coffee shops

  • Main competitors for this segment include Dunkin Donuts, McDonald’s, and Caribou Coffee

  • Competes with all packaged coffee and tea products sold through supermarkets and other retailers


Rei epat t r ent nea t 1

REI= EPATt- rent * NEAt-1

  • Valuation uses parsimonious forecasts previously calculated

  • REI is income in excess of that required given a company’s asset level and WACC

  • More accurate than FCF model due to predictions based on accounting information


Two parts of value

Two parts of value

  • Present Value of Forecasted REI

  • Continuing Value

    [REI *(1+g)/ (rent-g)]/ (1+rent)t

  • Sum is equal to enterprise value


Valuation of starbucks using residual enterprise income

Valuation Using Residual Enterprise Income


Valuation of starbucks using residual enterprise income

Valuation Using DCF Model


Inputs

Inputs


Valuation of starbucks using residual enterprise income

Questions?


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