Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: $SBUX Update 👇🏽

In the first two photos you will see the “Before Earnings” estimates & “After Earnings” estimates

The original 2026 EPS estimate was lowered from $5.35 to $4.98, a 6.91% decrease 📉

However, it would be prudent to approach these lower estimates with caution, as we've witnessed a significant decline in $SBUX's near-term predictability. This decreased reliability warrants a healthy dose of skepticism when considering these estimates

This is why I believe that, while shares may appear to be undervalued, it’s wise to let the sand settle for a couple quarters until there’s been some type of “bottom” in the business

While waiting may mean missing the exact bottom, it also ensures avoiding the potential danger of catching a falling knife if $SBUX faces further difficulties — & if you purchased $SBUX when it appeared undervalued in the mid $80’s — the current price isn’t necessarily too far off
___

With that being said, let’s make some conservative assumptions (I’ve reduced 2025 & 2026 & just assume an 11% growth rate) and see what kind of CAGR potential $SBUX has if it can get close to meeting these estimates:

2024E: $3.73 (5.4% YoY) *FY Sep
2025E: $4.14 (11.0% YoY)
2026E: $4.59 (11.0% YoY)

Let’s assume $SBUX ends 2026 with $4.59 in EPS (~10% below current estimates) & see its CAGR potential assuming different multiples

21x P/E: $96.39💵 … ~14.0% CAGR

20x P/E: $91.80💵 … ~11.7% CAGR

19x P/E: $87.21💵 … ~9.4% CAGR

Even when we assume lower EPS growth & a lower multiple, $SBUX appears to be a decent consideration at $75💵

IF (big IF) the 2024 challenges are a one-off, then those buying today will likely do well as yesterday’s mega-decline made up for the decreased estimates

If the 2024 challenges carry over into 2025, then there’s much greater uncertainty in $SBUX return potential & this is why I believe it’s wise to wait a couple of quarters to let the “sand settle”

#stocks #investing
___

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."

A sober valuation analysis on $SBUX 🧘🏽‍♂️

•NTM P/E Ratio: 21.32x
•10-Year Mean: 28.64x

•NTM FCF Yield: 4.22%
•10-Year Mean: 3.17%

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

Going forward, investors can expect to receive ~34% MORE in earnings per share & ~33% 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
•CA[...]

GR: 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 ~34% MORE in EPS & ~33% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $SBUX has to grow earnings at an 10.62% 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: $4.01 (13.3% YoY) *FY Sep
2025E: $4.65 (16.0% YoY)
2026E: $5.36 (15.3% YoY)

$SBUX has a good track record of meeting analyst estimates ~2 years out, BUT let’s assume $SBUX ends 2026 with $5.10 in EPS (5% below current estimates) & see its CAGR potential assuming different multiples

22x P/E: $112.20💵 … ~13.1% CAGR

21x P/E: $107.10💵 … ~11.0% CAGR

20x P/E: $102.00💵 … ~8.9% CAGR

As you can see EVEN when we assume a 20x - 21x multiple (a level that has rarely been breached in the past decade as you’ll see in the P/E chart) AND EVEN when we assume a 5% lower earnings estimate in 2026, $SBUX has attractive CAGR potential

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

When we assume >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 $88.00💵

$SBUX reports earnings today after close 🗓️

#stocks #investing
___

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. "- Dimitry Nakhla | Babylon Capital®
tweet

Hidden Value Gems
“Currently, Berkshire has requested confidential treatment from the SEC related to the purchase of one or more stocks for the third and fourth quarters of 2023.”

“That stock— Barron’s is assuming it is just one—likely is a financial stock based on disclosures in Berkshire Hathaway’s third-quarter 10-Q and annual report. Barron’s has speculated it could be $BLK $MS or $CB ”

via @barronsonline
tweet

Brandon Beylo
RT @VD718: It was @CorneliaLake’s initial report that got us to look at TDW- great work and thank you!

I want to give a HUGE shoutout to my friend @CorneliaLake on Tidewater's $TDW success.

He pitched TDW/offshore on my podcast in April 2023.

Since then, TDW is up ~150%.

Investing is a lonely game. It's important to celebrate the wins when good people get them. - Brandon Beylo
tweet

The Long Investor
This is how the US ETFs, commodities, fixed incomes, cryptos and global ETFs finished for the month after the majority of earnings were released

Red across the board….apart from one clear green sector

Chinese ETFs

When US declines, China directly benefits.

$SPY $QQQ HSI $YINN $FXI $MCHI
tweet

 Q-Cap 
It’s happening again.

That young man who blew his account on Carvana is now doing a mea culpa self assessment about how MORE conviction is what was needed and that he’s back to break even and thriving again. No word on idiotic concentration of course.

Fintwit hall of shame favorites are putting up their monthly returns for everyone to see. Talking about their unique process while softly pushing their avant garde research letters.

I know the old heads with battle scars see what’s going on but I sincerely hope those young investors who saw the first act play out in 2021 see through these delusional sociopaths and not follow these morons blindly.

And yes, we are so back.
tweet

Brandon Beylo
It’s that time of the year. https://t.co/vhf5SQcUXn
tweet

The Long Investor
RT @librarymindset: 40 Books To Read Before You Turn 40 https://t.co/wtsuYJpjHk
tweet

The Long Investor
$HOOD as always, ahead of everyone else.

Uploaded here over 3 weeks ago

$HOOD needs a little more of a pull back to complete Wave 4 for me before going higher again to complete Wave 5 at $24. https://t.co/7NP1FS6WCG - The Long Investor
tweet

The Long Investor
$ETH holding on the 0.5 Fib with the 200 Day MA moving up to meet the strong confluence level.

$ETH chart has been moving as smooth and controlled as you'll see from a chart, I expect this to continue. https://t.co/4hFjRgrynU
tweet

Daniel
Summary of 12 Years of Shareholder Letters by Nick Sleep:
tweet