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Starbucks Corporation Message Board

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  • mittal_p mittal_p Aug 13, 2006 1:23 PM Flag

    look out below

    http://www.post-gazette.com/pg/06225/712557-68.stm
    So is Starbucks still a viable investment candidate? In my opinion, the company merits careful consideration. For its fiscal third quarter ended July 2, Starbucks reported revenues of $2 billion, an increase of 23 percent, and net earnings of 18 cents per share, compared with 16 cents a year ago.

    The earnings-based intrinsic value of the shares, using a growth rate of 20 percent and a discount rate of 11 percent (average return on the S&P 500) is $40.30 per share. A free cash flow to the firm model yields an intrinsic value of $37.07.

    My 2007 earnings estimate for Starbucks is 90 cents per share. Assuming that the multiple or P/E ratio remains relatively constant, the shares should be trading at around $36 in the next 12 to 15 months for a gain of about 20 percent. Even with a 50 percent error, you still have a 10 percent gain.

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    • that is one of the worst pieces of financial analysis i've ever read. "assuming the p/e multiple stays the same"....that's a pretty big assumption!! why should it stay the same??! interest rates have risen and are rising, growth prospects are looking worse than they were 6 months ago given recent results. margins are falling. SSS growth is slowing. "even with a 50% error you're still up 10%"??...50% error in what? p/e multiple? eps estimate? he is suggesting there is a big margin of safety in his calculations and he is wrong. there is no margin of safety that big in virtually any equity valuation, let alone a stock on a multiple of nearly 35x. if it disappoints on that rating, u may get eps contraction but you will definitely continue to get multiple contraction which hurts equity investors a lot more.

      Its also not just oil and interest rates hurting this company on the revenue line imho, its also increasing competition from other franchise food/beverage outlets.

      make up your own mind on this stock, but following this journalist because of that analysis is hugely risky in my view.

      • 1 Reply to logan_chrs
      • Yes, I have to agree, as I'd like to paint a rosey scenerio for consumer stocks but when you see what is going on. The middle east war which is as heated up as it ever has been, the free world's breeding of Muslim terrorists that freely board our trains and planes and are planning more attacks as I type.
        You've got about 5% you can get risk free in a good short term money fund. Hey, pay pal is there at that! Shooting the dice for 10% when you have 5% at no risk lends more support for sideline funds. Yes, blood in the streets may come. SBUX may get to $22 a share and then, maybe consider a position. Maybe after an attack somewhere. SBUX has so much geopolitical risk in the world, so much exposure. Why would anyone buy a stock which is still even down from $39 a fluffball as to p/e and with the SSS comps slowly slip sliding A-way.....

    • Using the recently released Q2 earnings, SBUX earned $125.5 million in Q2 '05 and if you back out the one time tax gain in '06, SBUX earned $137 million in Q2 '06. That is a whopping 9% growth in earnings for a company trading with a PE in the 40's, come on! Who in their right mind would put there hard earned investment dollars in this thing and expect to make money? There are lots of places to park your investment dollars, this one from the long side is a huge mistake.

      • 1 Reply to GrainbeltCorp
      • "There are lots of places to park your investment dollars, this one from the long side is a huge mistake."

        Yeah, I'd have to agree with you ...as far as parking money here. And I agree with most of your calclatin', but you do not take acct for the fact that recent comps do not benefit from any price increases (as future comps may), and recent comps are the first to recognize the smack from the generous option grants that SBUX longs so happily give to their mgmt. So the 9% earnings growth that you cite does not tell the whole story. What is so interesting is that the jihadist longs that post here are too clueless about their investment to challenge your numbers - - and it takes an unbiased nuetral person (me) to do so.

 
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