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
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Mission Statement

• Establish Starbucks as the premier purveyor of
  the finest coffee in the world while maintaining
  our uncompromising principles while we grow.

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The Creation of Starbucks

• The 1980s
• Howard Schultz, the founder of Starbucks,
  traveled to Italy to learn of popularity of
  espresso bars
• After returning to the United States, Schultz
  convinces Starbucks to test the coffee bar
  concept in Seattle
• Total number of Starbucks locations 55

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Starbucks become a hit

• The 1990s
• Completes IPO with common stock being traded on
  the Nasdaq with the symbol SBUX
• Starbucks begin their fabled partnership with
  Barnes Nobles to establish Starbucks in every
  Barnes Nobles book store
• Total number of Starbucks location 2,135

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The Success of Starbucks

• The 2000s
• Started a partnership with T-Mobile to launch
  their high-speed wireless internet service in
  more than 1,200 stores
• Opens Starbucks Coffee Agronomy Company in San
  Jose, California
• Current number of stores 7,225

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Leaders of Starbucks
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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.

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Ever-expanding Business

• You can now get your Starbucks fix anywhere
  from
• Your local grocery stores
• Airports across the United States
• Any Hyatt hotel
• Universities campuses

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Taking over the world

• Starbucks goes international with stores opening
  up in over 34 countries like
• China
• Turkey
• Japan
• Canada
• Peru

Total number of International stores 1,680
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Revenues from Starbucks
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Where Does it Come From?
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Financial Ratios
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Financial Ratios Continue
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Holding Period Return
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Conclusion

• Holding Period Return increased from .11 to .46
  in 2003. Starbucks has had a positive Holding
  Period Return since 2002.

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Risk Analysis
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Conclusion

• Beta (Systematic Risk)
• 2004 .2366
• Unlevered Beta
• 2003 .1441

Beta has increased since 2004 even though in
2003, Beta dropped from .78 to .17.
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Discounted Cash Flow and
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CAPM
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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.

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Evaluation of SBUX
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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

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2003 Capital Structure
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MM Proposition
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.
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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
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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
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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.
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What to do
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Strengths and Weaknesses

• Holding Period Return is POSITIVE
• Revenues have grown over 24 in 2003
• Capital Structure is STABLE
• Low Debt Ratio
• Stock Scouter rates Starbucks 9 out of 10

• Never paid a dividend
• Price Ratios are poor
• Beta increased since 2002

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In Conclusion

• The group decided that people should Hold or
  Moderately Buy Starbucks since HPR is expected to
  increase and that Starbucks is underpriced.