PowerPoint - Add a Little Flavor With Starbucks

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					Add a Little Flavor With
Starbucks


 Presented by:
 Chris Huynh
 Philip Chiang
 Anthony Vu
 Phuong Nguyen
 Phuong Doan
 Vanessa Chiang
Mission Statement


   Establish Starbucks as the premier purveyor of the finest coffee
   in the world while maintaining our uncompromising principles
   while we grow.
The Creation of Starbucks
 The 1980’s
 o Howard Schultz, the founder of Starbucks, traveled to
   Italy to learn of popularity of espresso bars
 o After returning to the United States, Schultz
   convinces Starbucks to test the coffee bar concept in
   Seattle
 o Total number of Starbucks locations: 55
Starbucks become a hit
 The 1990’s
 o Completes IPO with common stock being traded on
   the Nasdaq with the symbol SBUX
 o Starbucks begin their fabled partnership with Barnes
   & Nobles to establish Starbucks in every Barnes &
   Nobles book store
 o Total number of Starbucks location 2,135
The Success of Starbucks
 The 2000’s
 o Started a partnership with T-Mobile ® to launch their
   high-speed wireless internet service in more than
   1,200 stores
 o Opens Starbucks Coffee Agronomy Company in San
   Jose, California
 o Current number of stores: 7,225
Leaders of Starbucks…
                                             Fiscal Year    Salary

 Orin C. Smith                                 2003        1,132,762

                 president and                 2002        1,088,269

                 chief executive officer       2001        995,192

 Howard Schultz                                2003        1,132,762

                 chairman and                  2002        1,088,269

                 chief global strategist       2001        995,192

 David A. Pace                                 2003        400,000

                 executive vice president,     2002         63,077

                 Partner Resources             2001
Conclusion…
 Based on some of the positions in the Board of
   Directors, Starbucks is not a family business.
 They only hold 5% of Starbucks’ total stock.
Ever-expanding Business…
 o   You can now get your Starbucks’ fix anywhere from:
          Your local grocery stores
          Airports across the United States

          Any Hyatt hotel

          Universities campuses
Taking over the world…
 o   Starbucks goes international with stores opening up
     in over 34 countries like:
          China

          Turkey

          Japan

          Canada

          Peru




 Total number of International stores: 1,680
Revenues from Starbucks
              85%
                    Operated Retail
                    Stores
                    Specialty
                    Operations
     15%
  Where Does it Come From?
            Speciality Operations                           Retail Operations
       8%
                                                         5% 5%
                                    Royalties                                   Coffee
                                                   12%
                           39%      Grocery                                     Food
27%                                 Sales                                       Items
                                                                                Coffee
                                    Licensing
                                    Rights                                      Bean
                                                                                Coffee
                                    Partnerships                                Equip.
  1%
                                    E-Commerce                        78%
        25%
Financial Ratios
 Growth         Starbucks      Industry          S & P 500        Assessment
 Ratios
 Sales                  27.7              27.3               8.8 Strong
 EPS (Qtr.)             38.6              37.4          610.2 Fair
 Price Ratios

 Current P/E            52.9              57.0           23.6 Poor
 Price/Sales            3.56              3.69           1.61 Poor
 Profit
 Margins
 Growth                 58.3              58.4               47.8 Fair
 Margin
 Pre-tax                11.2              10.7           10.4 Fair
 Margin
Financial Ratios Continue…
 Financial     Starbucks         Industry          S & P 500       Assessment
 Conditions
 Current                   1.6               1.5               1.6 Good
 Ratio
 Quick Ratio               1.0               0.8               1.2 Fair
 Investment
 (%)
 ROE                   13.4                 13.0           13.7 Fair
 ROA                       9.8               9.9               2.2 Fair
 Mgmt
 Efficiency
 Inventory                 7.0               6.0               8.1 Poor
 Turnover
 Receivable            37.2                 37.7               5.6 Poor
 Turnover
Holding Period Return
Holding Period         2004            2003       2002     2001 2000
Return                 (3/31)



Earnings Growth Est.      0.314

Dividends                       0         0          0       0       0

Average Price              37.6        25.76      23.13   19.35   44.81

HPR                        0.46     0.113705   0.195349 -0.052
Conclusion…
 Holding Period Return increased from .11 to .46 in
   2003. Starbucks has had a positive Holding Period
   Return since 2002.
Risk Analysis
                                                     2004          2003          2002          2001


 Unlevered Beta                                              0.144190999   0.665079471   0.692629823


 [Equity/(Equity +((1-T)Debt))]* BetaEquity=Beta_unlevered


 Equity                                                        2,082,427     1,723,189     1,375,927


 Debt                                                            647,319       491,203       475,112
 Income from continuing operations before income taxes           436,335       338,999       288,047


 Provision for income tax                                        167,989       126,313       107,712
 Tax rate                                                    0.385000057   0.372605819   0.373938975
 Beta SBUX                                   0.236617495      0.17175624   0.784023358   0.842363146


 Beta= COV(RIBM, RS&P500)/VAR(RS&P500)
Conclusion…
 o   Beta (Systematic Risk)
          2004: .2366

 o   Unlevered Beta
          2003: .1441



 Beta has increased since 2004 even though in 2003,
 Beta dropped from .78 to .17.
Discounted Cash Flow and…
 .Ke(Discounted cash flow (DCF)
 model)                           2004(1/31)                 2003           2002          2001
 P0=(FCFE1/Sh      FCFE
 ares0)/(Ke0-G1)   12/31/2004       215,936,190        164,335,000   -102,887,000   -27,545,000
 ke0=[(FCFE1/s
 hares0)/P0]       shares
 +G1               outstanding     3,937,000,000       393,692,536    388,228,592   380,044,302
 G1=(FCFE1-        G
 FCFE0)/FCFE0      03/31/2004             0.314       -2.597237746   -2.735233255   0.684810967



                   P
                   1/31/2004                   32.9          25.76          23.13         19.35


                   Ke(required
                   return on
                   equity)             0.330671         0.3352922       -2.578937    -2.7492241
CAPM
                          2004(1/31)       2003        2002        2001    2000

 .Ke
 (CAPM)     Rf                0.009         0.01      0.0163      0.0386
 Ke= Rf +
 Beta(Rm-
 Rf)        Rm-Rf            0.0133       0.3206     -0.2261     -0.1511


            Beta          0.2366174    0.1717562   0.7840233   0.8423631




            Ke(required
            return on
            equity)        0.012147     0.065065   -0.160961   -0.088681
Conclusion…
 Since Starbucks does not pay dividends to their
    stockholders, the DCF analysis (.33%) is not a good
    measurement for Starbucks. CAPM (1.21%) is a
    better measurement for Starbucks.
Evaluation of SBUX…
                                             2003       2002       2001
 We= Equity/(Equity+Debt+Preferred
 Stock)                                  0.762865   0.778177   0.743327

 Wd=Debt/(Equity+Debt+Preferred Stock)   0.237135   0.221823   0.256673
 Wp=Preferrd
 stock/(Equity+Debt+Prefer
 red Stock)                                    0          0          0

 Ke                                          0.08      0.076       0.14

 Kd                                         0.056       0.05       0.12

 Kp                                            0          0          0
 WACC=We*
 Ke +
 Wd*kd*(1-
 T)+ Wp*Kp         WACC                  0.069196     0.0661   0.123349
Conclusion…
 With a decrease from 2001 to 2002, the firm has
   increased their value: stating the lower the WACC
   means the greater the firm value
2003 Capital Structure

   24%
                         Debt

                         Equity
                  76%
MM Proposition
              0.053
                         0.05241
              0.052
              0.051
       WACC




               0.05
              0.049                                 0.04901
              0.048                   0.0482

              0.047

              0.046
                      0.23         0.22          0.25
                                          D/TA



  Based on the chart, Starbucks belongs to Model 3.
  There is a 22% optimal capital structure based on
  a three year analysis. A ten year analysis would
  provide better accuracy.
Market Efficiency
  4/8/2004: Announced plans to create an alcohol coffee with Jim
     Bean to be sold at restaurants. (No Form)


4/8/2004:
39.14
4/12/2004:
39.20
4/13/2004:
38.48
Market Efficiency
  3/31/2004: Alan Greenspan, Chief Executive to the
    Federal Bank is rumored to be ill. (No Form)


3/31/2004:
38.87
4/1/2004:
38.23
4/2/2004:
39.30
Five Year Price Index




 By looking at the five year price index you can see that the
 stock prices of Starbucks fluctuate a lot. In September of
 2001 it suffered a large decline due to the terrorist attacks. At
 the moment, Starbucks is currently experiencing its highest
 stock prices.
What to do…


 Recomm                1 Month   2 Months   3 Months
 endations   Current     Ago       Ago        Ago
 Strong
 Buy           4         4          4          4
 Moderate
 Buy           1         1          1          1
 Hold          9         9          9          9
 Moderate
 Sell          1         1          1          1
 Strong
 Sell          0         0          0          0
 Mean
 Rec.         2.47      2.47       2.47       2.47
Strengths and Weaknesses
 o   Holding Period Return is      o   Never paid a dividend
     POSITIVE                      o   Price Ratios are poor
 o   Revenues have grown over      o   Beta increased since 2002
     24% in 2003
 o   Capital Structure is STABLE
 o   Low Debt Ratio
 o   Stock Scouter rates
     Starbucks 9 out of 10
In Conclusion…
 The group decided that people should Hold or
   Moderately Buy Starbucks since HPR is expected to
   increase and that Starbucks is underpriced.

				
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