BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 02/25/2014 TARGET PRICE $66.17 BUSINESS DESCRIPTION Starbucks Corporation operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; Europe, Middle East, and Africa; China/Asia Pacific; and Channel Development. Sector: Consumer Goods & Svcs Sub-Industry: Restaurants Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years TARGET PRICE $66.17 70 65 60 55 STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 3.61 6.17 16.81 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 7.30 11.34 12.42 Net Income 20.36-0.87 18.62 EPS 24.39 0.84 19.65 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2016 46.65 219.24 11.83 Q3 2015 45.97 29.10 13.71 Q3 2014 4.89 202.80 14.43 Rating History BUY Volume in Millions 2014 2015 2016 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History 50 45 40 35 100 50 0 P/E COMPARISON RECOMMENDATION We rate () a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows low profit margins. 32.01 EPS ANALYSIS¹ ($) 30.65 Ind Avg 25.09 S&P 500 HIGHLIGHTS has improved earnings per share by 24.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, STARBUCKS CORP increased its bottom line by earning $1.82 versus $1.36 in the prior year. This year, the market expects an improvement in earnings ($1.89 versus $1.82). The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry average. The net income increased by 20.4% when compared to the same quarter one year prior, going from $626.60 million to $754.20 million. Q1 0.36 Q2 0.28 Q3 0.34 2014 Q4 0.39 Q1 0.65 Q2 0.33 Q3 0.41 2015 NA = not available NM = not meaningful Q4 0.43 Q1 0.46 Q2 0.39 Q3 0.51 2016 1 Compustat fiscal year convention is used for all fundamental data items. Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 7.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. Net operating cash flow has increased to $1,081.40 million or 38.94% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 8.40%. The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a debt-to-equity ratio, its quick ratio of 0.72 is somewhat and could be cause for future problems. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -10% 60% DPZ PNRA CBRL DRI ARMK YUM CMG UNFAVORABLE 5% EBITDA Margin (TTM) FAVORABLE MCD QSR DNKN 55% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $3.8 Billion and $97.7 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -10% 60% UNFAVORABLE CMG 1.5% QSR DNKN DPZ Earnings Yield (TTM) PNRA ARMK YUM FAVORABLE DRI CBRL MCD Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -8.9% and 51.1%. Companies with NA or NM values do not appear. 5% INDUSTRY ANALYSIS The hotels, restaurant, and leisure industry consists of hotels, restaurants, casinos, cruise lines, resorts, and theme parks. Demand is driven by a fairly consistent group of factors throughout the whole of the industry: personal income levels, total employment, and consumer confidence. In recent years, catastrophic weather, fear of terrorism, and health epidemics directly impacted the industry in a material way. The industry is capital, marketing, personnel, energy, maintenance, and technology intensive. Major players include Intercontinental Hotels Group (IHG), Marriott International Inc. (MAR), Las Vegas Sands (LVS), MGM Resorts International (MGM), McDonald s (MCD), and Yum! Brands (YUM). The foodservice industry employs more than 12 million people, making it America s second largest employer after the U.S. government. Not only is the industry huge, it s growing, as factors - such as a rise in two-income households - have been leading to increasing levels of dining out. In recent years, restaurant sales have risen roughly 5% annually according to National Restaurant Association estimates. However, despite its growth rate, the industry should be seen as mature. Companies within the industry generally earn thin margins and face stiff competition. As a result, M&A activity is frequent as competitors look to spread fixed costs across more locations. Both tourism and business travel remain keys to the industry, and as a result, U.S. GDP growth, consumer confidence, and corporate earnings remain vital to the industry s success. The expansion in capital spending has been in response to projected demand. However, overdevelopment in certain areas is a concern. Looking forward, any prolonged low occupancy rates could threaten hotels that are heavily leveraged. As for metrics, occupancy, average daily room rate, and revenue per available room should be considered when analyzing the industry or a player within the industry. Casinos generate roughly $68 billion in revenues annually, and typically, 50% of a casino hotel s revenues come from gaming, 20% from hotel rooms, 15% from food and beverages, and 15% from retail stores, shows, and other entertainment offerings. Expansion and consolidation have been recent trends of note. In 2005 alone, MGM Resorts International purchased Mandalay Resort Group for close to $8 billion and Harrah s bought Caesars for over $9 billion. Recent years have also seen a good amount of new casino construction in the $700 million range as competitors jockey to attract visitors by providing more elaborate offerings. Looking ahead, further capacity expansion may threaten margins. Meanwhile, most of the industry s top-line growth has come from Native American casinos, which at present generate roughly $16 billion in revenues annually. PEER GROUP: Hotels, Restaurants & Leisure Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 57.29 84,022 32.01 20,519.50 2,669.30 MCD MCDONALD'S CORP 114.44 97,659 21.92 25,125.30 4,733.10 ARMK ARAMARK 37.62 9,176 35.49 14,417.96 261.33 DRI DARDEN RESTAURANTS INC 61.19 7,723 21.85 6,933.50 375.00 DPZ DOMINO'S PIZZA INC 148.35 7,159 39.88 2,312.40 195.30 PNRA PANERA BREAD CO 217.44 4,895 36.73 2,740.47 145.14 DNKN DUNKIN' BRANDS GROUP INC 49.01 4,496 37.13 819.69 124.02 CBRL CRACKER BARREL OLD CTRY STO 157.23 3,764 20.37 2,885.95 185.68 YUM YUM BRANDS INC 89.53 34,907 26.97 13,005.00 1,426.00 CMG CHIPOTLE MEXICAN GRILL INC 418.75 12,192 62.04 4,047.24 211.92 QSR RESTAURANT BRANDS INTL INC 46.87 10,957 43.40 4,035.40 512.20 The peer group comparison is based on Major Restaurants companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Starbucks Corporation operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; Europe, Middle East, and Africa; China/Asia Pacific; and Channel Development. Its stores offer coffee and tea beverages, packaged roasted whole bean and ground coffees, single-serve and ready-to-drink coffee and tea products, juices, and bottled water. The company's stores also provide fresh food and snack offerings; and various food products, such as pastries, and breakfast sandwiches and lunch items, as well as serve ware, beverage-making equipment, and accessories. In addition, it licenses its trademarks through licensed stores, and grocery and national foodservice accounts. The company offers its products under the Starbucks, Teavana, Tazo, Seattle's Best Coffee, Evolution Fresh, La Boulange, Ethos, Starbucks VIA, Seattle's Best Coffee, Frappuccino, Starbucks Doubleshot, Starbucks Refreshers, and Starbucks Discoveries Iced Cafe Favorites brand names. As of March 27, 2016, it operated 23,921 cafes. Starbucks Corporation was founded in 1985 and is based in Seattle, Washington. 2401 Utah Avenue South Seattle, WA 98134 USA Phone: 206-447-1575 http://www.starbucks.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 5.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 90% of the stocks we rate. Total Return 4.0 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 70% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 4.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 80% of the stocks we monitor. Solvency 5.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze. Income 3.5 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 60% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2016 is essentially unchanged when compared to the same period a year ago. The company has grown its sales and net income during the past quarter when compared with the same quarter a year ago, and although its growth in net income has outpaced the industry average, its revenue growth has not. has liquidity. Currently, the Quick Ratio is 0.72 which shows a lack of ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. 0.55 Q4 FY16 1.89 E 2016(E) 2.18 E 2017(E) During the same period, stockholders' equity ("net worth") has remained virtually unchanged only decreasing by 2.30% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. INCOME STATEMENT Net Sales ($mil) 5,237.90 4,881.10 EBITDA ($mil) 1,187.20 1,114.90 EBIT ($mil) 939.60 878.40 Net Income ($mil) 754.20 626.60 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 2,316.30 2,175.20 Total Assets ($mil) 13,833.20 12,868.80 Total Debt ($mil) 3,602.20 2,897.20 Equity ($mil) 5,721.80 5,856.50 PROFITABILITY Gross Profit Margin 28.84% 28.75% EBITDA Margin 22.66% 22.84% Operating Margin 17.94% 18.00% Sales Turnover 1.48 1.43 Return on Assets 19.29% 20.92% Return on Equity 46.65% 45.97% DEBT Current Ratio 1.14 1.18 Debt/Capital 0.39 0.33 Interest Expense 21.80 19.10 Interest Coverage 43.10 45.99 SHARE DATA Shares outstanding (mil) 1,466 1,491 Div / share 0.20 0.16 EPS 0.51 0.41 Book value / share 3.90 3.93 Institutional Own % NA NA Avg Daily Volume 8,891,783 8,394,051 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 2/25/2014. As of 8/26/2016, the stock was trading at a price of which is 10.5% below its 52-week high of $64.00 and 11.7% above its 52-week low of $51.27. 2 Year Chart BUY: $38.90 2014 2015 $70 $60 $50 $40 MOST RECENT RATINGS CHANGES Date Price Action From To 8/26/14 $38.90 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 8/26/2016) 40.73% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.63% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 28.64% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. 's P/E ratio indicates a premium compared to an average of 30.65 for the Hotels, Restaurants & Leisure industry and a premium compared to the S&P 500 average of 25.09. To use another comparison, its price-to-book ratio of 14.68 indicates a significant premium versus the S&P 500 average of 2.81 and a significant discount versus the industry average of 39.07. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium. The valuation analysis reveals that, seems to be trading at a premium to investment alternatives within the industry. Price/Earnings 32.01 Peers 30.65 Average. An average P/E ratio can signify an industry neutral price for a stock and an average growth expectation. is trading at a valuation on par with its peers. Price/Projected Earnings 26.28 Peers 25.34 Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations. is trading at a premium to its peers. Price/Book 14.68 Peers 39.07 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its peers. Price/Sales 4.09 Peers 2.87 Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant premium to its industry. DISCLAIMER: Price/CashFlow 19.84 Peers 14.26 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a significant premium to its peers. Price to Earnings/Growth 8.34 Peers 2.97 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its peers. Earnings Growth lower higher 0.84 Peers 32.31 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher 11.34 Peers 6.90 Higher. A sales growth rate that exceeds the industry implies that a company is gaining market share. has a sales growth rate that significantly exceeds its peers. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5