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Fin 332 – Take Home Project for Starbucks
The second assignment is a take home project. I will allow you to work in groups of two if you choose. This is not required, meaning you may work alone as well. Given this is a take home, I expect you to work as if this were an in-class exam in terms of copying and/or sharing of information. You are NOT to work with others unless they are part of your 2-person team. You will abide by Drexel’s honesty code. If for ANY reason, I suspect sharing of information, all parties will receive a “0” on the exam or possibly fail the class. You will be reported to the Dean no questions asked. No project will be accepted unless you sign off on these terms.
If you delete any rows, change how I want the calculations to be constructed, change up the tabs, etc., you will lose ten points per change you make. Unfortunately, I have had too much experience with students copying in various different ways and therefore need to be VERY STRICT on this. In addition, you will be signing a full statement saying you have not in any way shared or plagiarized information.
GOOD LUCK!
Our final objective is to take the information we analyzed in the first homework assignment and attempt to value Starbucks (SBUX) and determine if you should invest in the stock today (3/7/19). Use the excel template provided to assess any historical and forecasted data. Most of your quantitative information will come from your calculations but if you have downloaded anything, i.e. ERP, it must be sourced appropriately (screen shots are typically sufficient and should be copied directly into excel). Forecasts, if they come from research, must also be sourced in footnotes and/or bibliography. Lack of sourcing results in point deductions (including 10K).
Quantitative Analysis (70 pts)
1) Fill in all highlighted items on all tabs starting with the historical data through the forecasted data (necessary items are highlighted in yellow and extra comments in blue).
a. Historical Valuation & Forecast : I’d highly suggest starting with the historical part of this tab and the WACC historical values b/c they are based on actual data and do not require opinions. All historical ratios must be calculated using the data on the ROIC tab and all forecasted data should be hardcoded in (unless you are using trend analysis or another process and therefore should show your calculation in the appropriate cells).
i. Income/ Balance Sheet/ CF Statement : Given
ii. Historical & Forecast : This tab has both the whole Company and some breakdown of revenues. You can calculate projected sales growth either by segment, by transaction/price or by license, company revenue & other. If you simply do company/license/other, you must still have some overall breakdown by geography. This tab (with the exception of row 68 down) should all be % and ratios as noted.
b. ROIC : Most values have been linked up to the Income Statement, Balance Sheet and Cash Flow Statement. Some things like the break-down of depreciation and amortization should be input based on the 10K. You must convert your forecast % to actual dollar values in this tab. Operating lease data is also there. Nothing hard coded in meaning everything must be linked back to the forecast tab.
c. Data Given on Several Tabs: There’s no calculations needed on these tabs. It’s all historical information on SBUX, Industry, Peers, etc.
d. WACC : Calculate the WACC based on market and book values. Source appropriately for this tab. For all yellow highlights, you should either calculate a value or link to data. You may adjust things like the risk-free rate or beta according to your predictions and/or the industry numbers given. It’s your choice which WACC (meaning MV vs BV) to use in your DCF.
e. Operating Lease : You have a sample of this calculation on the excel worksheet we used in the online class. Fill in necessary data and calculations. Either create a separate DCF or simply adjust the current DCF for operating leases as it is a more conservative way to value. Assume current year PV, debt, etc. applies both historically and forecasted for simplicity.
f. DCF : Calculate all yellow highlights or link data up to your ROIC tab for values already calculated. Calculate a sensitivity analysis for your exit multiple, growth rate and WACC. The spread to EV/EBITDA, WACC, and growth should reflect the historical volatility of these numbers and/or your view of things going forward.
g. Fill in all remaining values on the excel template and calculate your equity value. Based on this calculation, should you buy, sell or hold WEN stock.
h. Extra credit: Create best, base and worst-case scenarios, calculating the overall expected value. You’ll need three DCF’s to complete this as extra credit only – it is not required. Once you’ve completed your base case, simply make copies for the other outcomes and then change your forecasts directly in the DCF. You have to change multiple variables, explain your changes and calculate an overall expected value to receive extra credit.
Qualitative Assessment in a WORD document (30 pts)
1) Start your paper with a buy, sell or hold recommendation stating the level of valuation as compared to the current market price as of 3/7/19. Include both the current and forecasted growth strategy of SBUX and how these plans have been incorporated into your forecasts. This should incorporate both domestic, international & franchise plans. (approximately 1 page)
a. You do NOT need to reiterate what you already wrote in your homework assignment
b. How aggressive/conservative were you in your predictions and how did this impact your overall decision.
2) OUTLINE FORMAT : Explain the inputs into your DCF model. When I say “explain” I do not want a reiteration of the number or the formula but rather what determined the number in your analysis. You must support your thought process and cannot just look at the history of the company and assume that will continue. Bullet points should be used. Do not write up a paper for this section.
a. Revenue growth, gross and operating profit margin projections over the 2019-2023-time frame. Even if you read an analyst report you still need to explain what is behind their evaluation of SBUX growth. Did you include the economy in your projections? Also include if your forecasts include things like restructuring and impairment costs. Include your assessment of segments, price, transaction, etc.
b. Terminal growth rate, ROIC and Exit multiple, you used in the continuing value.
c. Invested capital projections – include your assessment of NWC accounts (meaning what was behind your thoughts on how you came up with your forecasted values), PP&E and intangible assets.
d. WACC used and how you chose your inputs of Beta, Risk free rate, Risk premium, MV or BV.