Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $SBUX 🧘🏽‍♂️

•NTM P/E Ratio: 20.26x
•10-Year Mean: 28.66x

•NTM FCF Yield: 4.38%
•10-Year Mean: 3.16%

As you can see, $SBUX appears to be trading below fair value

Going forward, investors can expect to receive ~41% MORE in earnings per share & ~38% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $SBUX is a quality business

BALANCE SHEET🆗
•Cash & Equivalents: $3.95B
•Long-Term Debt: $13.59B

$SBUX has a decent balance sheet, a BBB+ S&P Credit Rating & 10.92x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2018: 34.9%
•2019: 76.4%
•2020: 9.0%
•2021: 25.5%
•2022: 29.1%
•2023: 33.2%

RETURN ON EQUITY🆗
•2018: 136.2%
•2019: (142.2%)
•2020: (13.2%)
•2021: (64.1%)
•2022: (46.9%)
•2023: (49.4%)

$SBUX has solid return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $14.87B
•2023: $35.98B
•CAGR: 9.23%

FREE CASH FLOW✅
•2013: $1.76B
•2023: $3.68B
•CAGR: 7.65%

NORMALIZED EPS✅
•2013: $1.10
•2023: $3.54
•CAGR: 12.39%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 1.52B
•LTM Shares Outstanding: 1.15B

By reducing its shares outstanding ~24%, $SBUX increased its EPS by ~31% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 27.4%
•LTM Operating Margins: 15.4%
•LTM Net Income Margins: 11.5%

PAID DIVIDENDS✅
•2013: $0.45
•2023: $2.16
•CAGR: 16.98%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~41% MORE in EPS & ~38% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $SBUX has to grow earnings at an 10.13% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be greater than the (10.13%) required growth rate:

2024E: $4.04 (14.2% YoY) *FY Sep
2025E: $4.70 (16.2% YoY)
2026E: $5.42 (15.4% YoY)

$SBUX has a good track record of meeting analyst estimates ~2 years out, so let’s assume $SBUX ends 2026 with $5.42 in EPS & see its CAGR potential assuming different multiples

22x P/E: $119.24💵 … ~16.1% CAGR

21x P/E: $113.82💵 … ~14.1% CAGR

20x P/E: $108.40💵 … ~12.0% CAGR

19x P/E: $102.98💵 … ~9.9% CAGR

As you can see, EVEN when we assume a 20x multiple (a level that has rarely been breached in the past decade as you’ll see in the P/E chart), $SBUX has attractive CAGR potential

Even at 19x earnings — a multiple that $SBUX hasn’t traded at since 2010 — $SBUX has near double digit potential

So, there’s already a decent margin of safety 💪🏽

When we assume 21x - 22x (also well below its 10-year average and on the lower end of its valuation range), $SBUX has the potential to compound in the mid-teens

$SBUX appears to be an attractive consideration today at $86.00💵

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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Brandon Beylo
Junior mining stocks trying to close green during a commodity bull cycle. https://t.co/oT4zvPuqmu
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Brandon Beylo
https://t.co/dTV5YSLGWo

POWELL: RECENT DATA SHOW LACK OF FURTHER PROGRESS ON INFLATION - zerohedge
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Antonio Linares
Closed

My 2 Hour Deep Diver course is selling for $150 instead of $199 for the next 3 hours only.

Don’t miss out. - Antonio Linares
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Brandon Beylo
Remember in January when Janet Yellen told us that inflation was under control?

Good times, man.

Good times. https://t.co/3Y6Q7z4njN
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Brandon Beylo
Face rip: Confirmed.

Lol inflation about to rip some faces off. - Brandon Beylo
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Antonio Linares
5 companies constructing world class moats/competitive barriers:

1. $PLTR: Transforming into a platform, $PLTR's commercial offerings are enhancing deployment speed and ease through AI innovations. As it integrates a diverse client base across industries, the platform's bespoke solutions increasingly challenge imitation by competitors.

2. $HIMS: Navigating the complex pharmacy sector, $HIMS has established a vertically integrated, automated pharmacy system tailored for digital-native consumers, bypassing traditional insurance constraints and generating positive operational cash flow. Moreover, its expansive patient data collection is forging the world’s premier AI-driven closed-loop in healthcare.

3. $SPOT: Perceived merely as a music streaming service, $SPOT is eclipsing this view by aiming for 1 billion monthly active users and expanding into various audio sectors, positioning itself as the "Google of audio." The expanding network enhances its potential to develop AI tools uniquely beneficial for both creators and users, distancing itself from competitors.

4. $AMD: Bolstered by strategic acquisitions like Xilinx and Pensando, $AMD leverages its specialized expertise to customize accelerated computing solutions uniquely, outpacing industry rivals with each product release by increasing personalization capabilities for its clients.

5. $TSLA: More than a car manufacturer, $TSLA is developing an integrated platform combining affordable energy, AI, and highly efficient manufacturing to create an insurmountable competitive edge. With each new vehicle and device rollout, $TSLA's data accumulation will further refine its unparalleled AI technologies.
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Brandon Beylo
Trafigura CEO says copper must trade above $5/lb to meet demand forecasts.

I think that's the low end of future price discovery.

Lower grades, input cost inflation, labor shortages, increased red tape/environmental regulations.

All these things increase AISCs/breakevens. https://t.co/JUeCr6dNmy
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The Long Investor
RT @dubinvest: BREAKING:

Senator @TTuberville just traded.

He bought $HUMA, A company that benefits directly from international war efforts due to their development of implant technology.

Tuberville is on the Armed Services Committee.

You can copy trade Tuberville on dub.
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Brandon Beylo
Very excited to announce that I'm interviewing @erik_ywr this week for the podcast.

This episode will be a Crash Course on Inflation.

We'll discuss:

• Supply shocks
• Demand shocks
• Inflation throughout history
• The Roman Empire

And more!

Can't wait.
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Brandon Beylo
RT @kingdomcapadv: Had a good time catching up with @marketplunger1, covered coal stocks, ate some crow on $PLCE, and discussed why we both like $GENK. Thanks for having me on!

https://t.co/RNOmcRJ8dj
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Giuliano
Why do I expect legal finance to keep growing?

It mostly reduces to the reason why it emerged.

Companies utilize liquidity to fund their own operations. Management want to allocate capital and time in business-related activities. That's where their circle of competence resides. Funding legal departments or paying law firms impedes this.

At the same time, there's a mismatch in the desired methodologies of payment. Companies tend to prefer to pay on a contingent basis, while law firms prefer to be paid on an hourly, or fixed basis. Due to the latter's cost structure, it's likely for this mismatch to persist.

Legal finance solves this at no risk. The financier, generally, would only receive money if the case resolves favorably. Hence, this mechanism removes downside from cost yet keeps some upside for businesses.

In addition to this, there are two interesting advantages from an accounting perspective:

1. Legal expenses flow through the p&l, being recorded as operating expenses. They invariably reduce the earnings and cash flow a company produces and reports. The problem is not only the money that's needed, but the market value cost it implies.
If the company spends 100M in legal fees and trades at PE of 20, the cost in market value terms is of 2 billion dollars.

2. When companies have an ongoing litigation, there might be the possibility of them generating cash flow in the future. However, this is not recorded as an asset. Hence the market assigns little to no value to such a thing.
Legal finance recognize the asset's value and allows corporations to monetize their claims, by offering cash upfront in exchange for a share of the potential proceeds plus a return on the funded cost. Again, only if the case resolves favorably will the financier receive money.
It essentially offers cash now to a manager that can employ it in their operations and to which the market assigns value.

Legal finance is a solution to a problem I expect will continue in this enormous industry. More importantly, it's a tool I suspect most managers will be happy to utilize.
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Giuliano
$BUR's recent disclosure on competitors' debt and funds raised. https://t.co/9KbksYPRlf
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