Valuation - Reverse Engineering

Kr
1/28/2012

Market Value:
Price per Share $ 23.46

Price Differential
Valuation Parameters: $ 86.56 Per-share Percentage
Book Value of Equity (most recent balance sheet) $ 4,214 $ 63.10 72.9%
Shares Outstanding (in millions of shares) 537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%

Required Rate of Return:

Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium

Starbucks
Abnormal EPS-Based Valuation

Forecasts:
Year +1 Year +2 Year +3 Year +4

EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45

BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74

Present Value Factors 0.953 0.908 0.866 0.825

PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26
Sum of PV of Abnormal EPS $ -
Continuing Value $ 76.63
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 84.47
Times: Mid-year Adjustment: 1.025
Value ps: $ 87

Starbucks
entage

Starbucks
Year +5 Long Run

$ 3.76 $ 3.84
$ 17.05 $ 19.93
$ 0.84 $ 0.98
$ 2.92 $ 2.86

0.786
$ 2.30

Starbucks
Valuation - Reverse Engineering

Kr
1/28/2012

Market Value:
Price per Share $ 23.46

Price Differential
Valuation Parameters: $ 43.62 Per-share Percentage
Book Value of Equity (most recent balance sheet) $ 4,214 $ 20.16 46.2%
Shares Outstanding (in millions of shares) 537
Equity Cost of Capital 8.00%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%

Required Rate of Return:

Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium

Starbucks
Abnormal EPS-Based Valuation

Forecasts:
Year +1 Year +2 Year +3 Year +4

EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45

BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.63 $ 0.78 $ 0.96 $ 1.15
Abnormal EPS $ 1.91 $ 2.11 $ 2.20 $ 2.29

Present Value Factors 0.926 0.857 0.794 0.735

PV of Abnormal EPS $ 1.77 $ 1.81 $ 1.74 $ 1.69
Sum of PV of Abnormal EPS $ 8.64
Continuing Value $ 25.45
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 41.94
Times: Mid-year Adjustment: 1.040
Value ps: $ 44

Starbucks
entage

Starbucks
Year +5 Long Run

$ 3.76 $ 3.84
$ 17.05 $ 19.93
$ 1.36 $ 1.59
$ 2.40 $ 2.24

0.681
$ 1.63

Starbucks
Valuation - Reverse Engineering

Kr
1/28/2012

Market Value:
Price per Share $ 23.46

Price Differential
Valuation Parameters: $ 64.76 Per-share Percentage
Book Value of Equity (most recent balance sheet) $ 4,214 $ 41.30 63.8%
Shares Outstanding (in millions of shares) 537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 0.0%
Dividend Payout Rate 23.5%

Required Rate of Return:

Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium

Starbucks
Abnormal EPS-Based Valuation

Forecasts:
Year +1 Year +2 Year +3 Year +4

EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45

BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74

Present Value Factors 0.953 0.908 0.866 0.825

PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26
Sum of PV of Abnormal EPS $ 11.01
Continuing Value $ 44.34
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 63.20
Times: Mid-year Adjustment: 1.025
Value ps: $ 65

Starbucks
entage

Starbucks
Year +5 Long Run

$ 3.76 $ 3.76
$ 17.05 $ 19.93
$ 0.84 $ 0.98
$ 2.92 $ 2.78

0.786
$ 2.30

Starbucks
Valuation - Reverse Engineering

Kr
1/28/2012

Market Value:
Price per Share $ 23.46

Price Differential
Valuation Parameters: $ 97.84 Per-share Percentage
Book Value of Equity (most recent balance sheet) $ 4,214 $ 74.38 76.0%
Shares Outstanding (in millions of shares) 537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%

Required Rate of Return:

Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium

Starbucks
Abnormal EPS-Based Valuation

Forecasts:
Year +1 Year +2 Year +3 Year +4

EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45

BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74

Present Value Factors 0.953 0.908 0.866 0.825

PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26
Sum of PV of Abnormal EPS $ 11.01
Continuing Value $ 76.63
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 95.48
Times: Mid-year Adjustment: 1.025
Value ps: $ 98

Starbucks
entage

Starbucks
Year +5 Long Run

$ 3.76 $ 3.84
$ 17.05 $ 19.93
$ 0.84 $ 0.98
$ 2.92 $ 2.86

0.786
$ 2.30

Starbucks
Valuation - Reverse Engineering

Kr
1/28/2012

Market Value:
Price per Share $ 23.46

Valuation Parameters: $ 98
Book Value of Equity (most recent balance sheet) $ 4,214
Shares Outstanding (in millions of shares) 537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%

Required Rate of Return:

Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium

Abnormal EPS-Based Valuation

Forecasts:
Year +1 Year +2 Year +3 Year +4 Year +5 Long Run

EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45 $ 3.76 $ 3.84

BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42 $ 17.05 $ 19.93
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71 $ 0.84 $ 0.98
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74 $ 2.92 $ 2.86

Present Value Factors 0.953 0.908 0.866 0.825 0.786

PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26 $ 2.30
Sum of PV of Abnormal EPS $ 11.01
Continuing Value $ 76.63
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 95.48
Times: Mid-year Adjustment: 1.025
Value ps: $ 98

Valuation - Sensitivity Analysis

Variable Assumptions: sensitivity to g Sensitivity to discount rate

$ 98 $ 98
Required rate of return: 0% 3%
(from above) 4.93% 1% 4%
2% 5%
Long run growth: 2.0% 3% 6%
(from above) 4% 7%
8%

Starbucks
 Kroger
1/28/2012

Market Value: Market Multiples

Price per Share $ 23.46
52 Week High and Low 20.98 - 35.24 Price/Earnings (ttm)
Price/Earnings (ttm, cum div)
Shares Outstanding (millions) 537 Price/Earnings (est)
Market Capitalization (millions) $ 12,598 PEG
Market-to-Book
Book Value (millions) $ 4,214
BV per share $ 7.85

Earnings (ttm; millions) $ 983

Earnings (ttm; per share) $ 1.83 9%

Dividends (ttm; millions) $ 231

Dividends per share $ 0.43
Dividend Payout Rate 42.6%

Beta average 0.60 0.73 0.7 0.3664

Analysts:
Median Target Price 31,14
Price Target Range $21 - $24
EPS Year +1 $ 2.54
EPS Year +2 $ 2.89
Next 5 Years Earnings Growth 9.20%
Long-run Earnings Growth 2.00%

Starbucks
12.8
13.1
9.2
1.00
3.0

Starbucks