Starbucks Corporation

Date: April 15, 2024.

Company’s Overview

Starbucks (SBUX), a global coffeehouse giant, wakes you up worldwide. With locations scattered across 80 countries, they offer brewed coffees, espresso drinks, pastries, and light bites. Think of them as your go-to spot for a caffeine fix and a warm atmosphere, wherever you are in the world.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Starbucks, the world’s coffee giant, might be your local caffeine haven, with locations brewing up lattes and pastries across 80 countries. But even coffee giants face a bitter cup sometimes. Competition from other chains and new upstarts is hot, and keeping their brand innovative is crucial.

The cost of coffee beans, a key ingredient, can fluctuate and hurt their profits. With their extensive presence in some areas, reaching new customers might be a challenge. Evolving consumer tastes towards healthier drinks or brewing methods could also force Starbucks to adapt their menu. Rising labour costs and economic downturns that squeeze consumer spending are additional hurdles.

Financial Analysis

Company’s Revenues

Revenues from 2021 to 2023:

• Starbucks annual revenue for 2023 was $35.976B, a 11.55% increase from 2022.
• Starbucks annual revenue for 2022 was $32.25B, a 10.98% increase from 2021.
• Starbucks annual revenue for 2021 was $29.061B, a 23.57% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Starbucks annual net income for 2023 was $4.125B, a 25.69% increase from 2022.
• Starbucks annual net income for 2022 was $3.282B, a 21.85% decline from 2021.
• Starbucks annual net income for 2021 was $4.199B, a 352.36% increase from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Starbucks 2023 annual EPS was $3.58, a 26.5% increase from 2022.
• Starbucks 2022 annual EPS was $2.83, a 20.06% decline from 2021.
• Starbucks 2021 annual EPS was $3.54, a 348.1% increase from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Starbucks annual free cash flow for 2023 was $3.785B, a 48.09% increase from 2022.
• Starbucks annual free cash flow for 2022 was $2.556B, a 43.44% decline from 2021.
• Starbucks annual free cash flow for 2021 was $4.519B, a 3857.18% increase from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

During the quarters ended December 31, 2023 and January 1, 2023, the Company repurchased 12.8 million and 1.9 million shares of common stock on the open market for $1,250.1 million and $191.4 million, respectively.

As of December 31, 2023, 29.8 million shares remained available for repurchase under current authorizations.

Asset/Liabilities & Current Ratio

Diving into Starbucks’ financial health reveals a concerning picture. The asset-to-liability ratio of 0.77 indicates their assets (resources) are only three-quarters the value of their debts (liabilities). This weak balance sheet leaves them with minimal buffer to absorb unexpected costs or invest in growth initiatives.

The current ratio of 0.7 further emphasizes this concern. This metric measures a company’s ability to meet short-term obligations (debts due within a year) using short-term assets (cash, receivables). A ratio below 1, like Starbucks’s, suggests they have limited resources readily available to cover their immediate financial commitments. This could restrict their ability to react to sudden opportunities or challenges that require immediate cash flow.

Valuation

Based on the DFC analysis, SBUX’s price is overvalued. As key metrics, we consider 8% Required Rate of Return (RRR) and 10% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 11 buy, 2 overweight, 20 hold, 0 underweight and 0 sell ratings. The consensus rating leans toward hold.

Starbucks presents a situation where strong financials are overshadowed by a weak balance sheet. On the positive side, they boast impressive growth with a 10-year revenue CAGR of 9% and a phenomenal 10-year EPS CAGR of 47%. They’ve also been shareholder-friendly, reducing outstanding shares by 26% since 2011, and their ROIC of 16.26% indicates they generate excellent returns on invested capital. However, the stock price might be overvalued based on DCF analysis, but a premium for established brands is somewhat expected.

More concerning is their weak financial strength. The high net debt of $21 billion, a low asset-to-liability ratio of 0.77, and a current ratio of 0.7 raise serious questions about their ability to weather economic downturns or invest in future growth. The P/E ratio of 23.72 is only slightly above the industry median of 23.11. While Starbucks’ brand strength and growth are undeniable, their shaky financial foundation is a significant concern.

Investors seeking a company with a strong balance sheet might want to look elsewhere, but for those comfortable with a bit more risk, Starbucks’ potential for future growth could be a long-term opportunity, especially considering the current low stock price.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.