Saravanan VelrajanParvathi Natarajan

Alan Phan

FIN-554Starbucks – DCF & WACC

Agenda

• About Starbucks• Drivers behind growth• Valuations• WACC• DCF• Investment - conclusion

Starbucks - Introduction

• SBUX – Listed in Nasdaq100, S&P 500, S&P 1500 Super Comp

• Sector – Services• Business – Purchasing, roasting &

selling whole bean coffees worldwide.

• Current Stock Price - $30.41• Recommendation – Buy

Summary chart

SBUX – 5 yr stock

Positives

• Earnings in excess of $600 million in 2004 & generated revenue of more than $5000 million.

• 9000 cafes in almost 40 countries. • Five 2-for-1 stock splits since IPO.• One of the Fortune Top 100

Companies to Work For in 2005. • Wi-Fi access in all shops.

Negatives

• Has approximately 80% market share. Vulnerable to competition

• Has a strong presence in US. Need to spread to other countries to minimize business risk

• Products priced high.

Drivers behind Growth

Valuations - Multiples• Price History• STARBUCKS CORP current price:

$30.41• Overhead resistance for

STARBUCKS CORP: $32.13 (52-week high)

• First support for STARBUCKS CORP: $25.86 (200-day moving average)

• Second support for STARBUCKS CORP: $25.55 (50-day moving average)

Valuation – Multiples Contd.

• Price Target

Stock Valuation - WACC

Stock Valuation - DCF

Investment Conclusion