Starbucks Corporation (SBUX)

Total return at 5 years: -2.5%/year = -6.3% appreciation + 3.8% dividend. The target price ($67) is ex-dividend; the $15 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $79 · Multiples $67) is below the market price ($92).

Today — expensive, no margin of safety: at $92 trades ~38.2% above its value discounted to today (~$67); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$43.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($92) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (10.6%/year) above our base case (7.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$4.9 bn of owner earnings in year 5 (vs ~$4.2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM ended 28-Jun-2026 (US$38.338bn of revenue, EBIT US$2.978bn, net income US$1.983bn), depressed by the restructuring charges of "Back to Starbucks" (US$892M in FY2025) and by a fiscal year 2026 in full transition. The path starts from the guidance in the 8-K of 29-Jul-2026 (Item 2.02, quarter ended 28-Jun-2026), not from the historical trajectory: consolidated FY2026 revenue "flat to slightly higher" versus FY2025 (US$37.184bn) — a real brake explained by the conversion of the company-operated stores in China to a licensing model with Boyu Capital (Starbucks retains 40% of the venture), which reduces reported revenue (company-operated store revenue disappears, replaced by royalties) even though the underlying business is not shrinking — and FY2026 adjusted earnings per share guided at US$2.55-2.65. With both anchors of the guidance (revenue and earnings per share) year 1 shows a trough-and-recovery shape: revenue falls slightly on the China conversion effect while the margin expands strongly (FY2026 guided adjusted operating margin above 11%, from an adjusted FY2025 of ~10.3%), reflecting that year 1 rebuilds profitability on a temporarily compressed revenue base. From year 2 the trajectory resumes growth supported by comparable sales momentum (global +7.9% in the quarter ended Jun-2026, the fourth consecutive quarter of growth) and by the guided net opening of 600-650 stores a year, decelerating smoothly toward a durable rate of ~5% (the specialty retail band). The net margin converges toward ~10% by year 5, below the FY2023 historical peak (11.5%) because the moat was rated "stable" (not "widening"): the recovery is real but competitive intensity and the execution risk of the turnaround limit the margin of safety for assuming a full return to the peak. The bear case stresses year 1 with guidance at the low end (flat revenue) and a margin that fails to expand at the guided pace; the bull case assumes a faster recovery in comparables and less drag from the China conversion. Exit multiple on operating income, at the enterprise level (cash and debt in the bridge), within the restaurant operator band [11-16×]: base at 13.5× (high brand quality and scale, but a stable rather than widening moat, and turnaround execution risk that prevents going to the top of the band).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $67 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $92, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $67 in 5 years plus $15 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $67. Against the current market price ($92), the margin of safety is -38.2% (trades above the maximum → a premium is paid) and the total return at that price would be -2.5% annually.

• Entry multiple. Today's price implies an EV/EBIT of 39× on operating income over the last twelve months, depressed by restructuring and transition charges, considerably above the restaurant operator band (11-16×).
• Exit multiple runway. The base multiple of 39× is within the specialty retail band, but in the mid-to-upper zone, reflecting brand quality without reaching the ceiling because the moat is still "stable."
• Recovery already recognized. The price already reflects the recovery, with no identifiable perception-reality gap in the buyer's favor.
• Favorable scenario vs. price. Even the favorable scenario in the path —a faster comparable-sales recovery— lands close to the current price, evidence that the market already pays for near-flawless execution.
• Dividend yield. The current dividend (US$2.48/share) represents a moderate yield on the current price, with 65 consecutive quarters of payment.
• Margin of safety. The estimated annual return at market price is -3%, below the 10% bar for average expected profitability.
• Sensitivity to execution. The value critically depends on the guided margin recovery holding beyond the quarter's transitory tariff refunds.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (145%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. NOPAT over balance-sheet invested capital far exceeds the 10% bar, though the result is inflated by negative equity (historical buybacks), not solely by operating efficiency.
• Cash conversion. TTM operating cash flow (US$4,986 million) comfortably exceeds TTM net income (US$1,983 million), with the gap largely explained by D&A and non-cash adjustments.
• GAAP earnings predictability. TTM GAAP earnings are distorted by restructuring charges, the gain on the China sale, and a very volatile effective tax rate between quarters.
• Working capital. The stored-value prepaid card model funds part of the operation with customer float, a structurally favorable trait for working capital.
• Gross margin quality. Cost of sales and occupancy as a percentage of revenue improved in the quarter, helped by tariff refunds that are partly transitory.
• Capital intensity. TTM capex (US$1,344 million) fell sharply from historical levels of US$1,800-2,800 million, reflecting capital discipline during the transition more than a structural reduction in investment needs.
• Productive reinvestment. The reopening of net store growth (600-650 guided) is the test of whether reinvested capital again generates incremental return above the cost of capital.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Starbucks' driver is transactions × average ticket per transaction within comparable sales, not volume × price of a commodity nor GMV × take rate of a marketplace: the company itself breaks down its growth this way in every release. The recent recovery came in similar parts from both components, a signal that traffic —not just price— is returning to stores. The conversion of China to a licensed model introduces a structural break in International's reported revenue that does not reflect a change in underlying economic activity.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (28-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Comparable sales. Four consecutive quarters of growth, with the most recent at +7.9% globally, driven by transactions and average ticket in similar parts.
• Net store openings. Guidance of 600-650 global net stores for FY2026, a moderate pace after prioritizing underperformer closures during the restructuring.
• Consolidated reported revenue. Consolidated revenue fell 1% in the quarter due to the conversion of China to licensing, an accounting presentation effect, not one of economic activity.
• Margin guidance. Adjusted operating margin guided to exceed 11% for FY2026, nearly 100 basis points above the FY2025 adjusted level.
• International expansion. The International segment grows in comparable sales (+5.7% in the quarter) but its reported revenue is distorted by the China conversion.
• Pace sustainability risk. The comparable-sales recovery leans on still-easy year-over-year comparisons against a weak FY2025; sustaining the pace against tougher comparisons is the pending test.
• Channel Development. Grew 22% in the quarter on the Global Coffee Alliance, with the best operating margin of the three segments (52.1%).

• Demand recurrence. Coffee is a high-frequency daily consumption habit, with low sensitivity to the economic cycle compared to other discretionary categories.
• Product differentiation. The brand experience and handcrafted preparation differentiate against commodity coffee, although it competes with fast-food chains that also sell coffee.
• Competitive position. The 10-K itself acknowledges the company "does not hold leadership positions in all segments" and faces well-financed competitors in Channel Development.
• Operating leverage. Adjusted operating margin expanded 430 basis points in the quarter on sales leverage, evidence that the business recovers profitability quickly when traffic returns.
• Pricing power. Average ticket per transaction rose 3.5% in the quarter without slowing transaction growth, a sign of pricing power, though limited by discretionary-consumer sensitivity.
• Geographic dependence. North America accounts for 74% of revenue; the filing itself declares the business "highly dependent" on that segment.
• Behavior in recessions. Discretionary spending on coffee away from home suffers in deep recessions, though the daily consumption habit cushions part of the impact.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)5.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 145% of ROIC
• ✓Value creation (ROIC − 10% bar)+101pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.9% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Equity. Negative net equity (US$-7,674 million) from years of share buybacks exceeding retained earnings — a capital structure leveraged by choice, not by business deterioration.
• Total debt. US$13,279 million of total debt, with US$2,816 million repaid in the quarter using proceeds from the China sale.
• Liquidity. Cash and equivalents of US$3,450 million plus US$161 million of short-term investments, comfortable against current debt maturities of US$1,498 million.
• Interest coverage. TTM EBIT (US$2,978 million) comfortably covers annualized interest expense, though with less cushion than in the years prior to the restructuring.
• Operating cash generation. TTM operating cash flow (US$4,986 million) comfortably covers the dividend paid (US$2,811 million) and capex (US$1,344 million).
• Negative working capital. The prepaid card model works as low-cost self-funding, a structurally favorable feature of the business.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO track record. Brian Niccol led successful turnarounds at Chipotle and Taco Bell before joining Starbucks in September 2024, with more than 25 years in the industry.
• Alignment of interests. The proxy does not report a material historical equity stake for the CEO or a founder; the ownership structure is dominated by passive institutions.
• Capital allocation. Capital went toward maintaining the dividend and operating reinvestment, with buybacks at zero since FY2025 — prudent during a transition, but with no evidence yet of opportunistic buybacks at low prices.
• Candor about mistakes. The earnings release and the 10-K explicitly acknowledge the prior comparable-sales deterioration and the need for the recovery plan, rather than attributing it solely to external factors.
• Use of the China sale proceeds. Proceeds from the sale of the China operation went to repay debt rather than to share buybacks, a conservative balance-sheet decision during the transition.

• The price already reflects the recovery: there is no source of market discount — the price already reflects optimism about execution of the turnaround, not a perception-reality gap
• Reported revenue looks artificially weak due to the accounting conversion of China from company-operated to licensed, a presentation effect that a superficial reader of the revenue headlines could mistake for business weakness
• GAAP earnings remain depressed by restructuring and transition charges expected to be completed within a finite period, so the current GAAP P/E overstates the real cost of entry

No clear source of discount is identified: the price already reflects the comparable-sales recovery and improved guidance. This is not a perception-reality case in the buyer's favor, but a price that already requires the turnaround's execution to continue without stumbling.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -12%/year (-48% total): the margin of safety protects the downside. The bull (+3%/year, +16% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Turnaround execution. The 10-K itself warns that the company may fail to implement its strategic initiatives as expected or generate the anticipated returns.
• North America dependence. 74% of revenue comes from a single segment, declared "highly dependent" by the company itself.
• Arabica coffee cost. The coffee price has risen steadily over the past five years, with the company's limited hedging capacity.
• Unionization. Approximately 6% of U.S. company-operated stores already have union representation, with initial collective-bargaining negotiations underway.
• History of missing guidance. The 10-K itself acknowledges that in the past the company has failed to meet its guidance or market expectations, affecting the stock price.
• Transitory tariff refunds. Part of the quarter's margin expansion is explained by tariff refunds that offset the impact of the first three quarters of the year, an effect that does not automatically repeat.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 111% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a multiple/growth of 5.5 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 111% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 11% vs our 7%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -17%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, switching costs, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 11% vs our 7%: coherent, but at the optimistic end of the range.