This document contains a valuation of Starbucks stock using different valuation parameters and methods. It presents the company's current market value and financial metrics. It then shows the results of valuations using an abnormal earnings model with varying assumptions for cost of equity, earnings growth rates, and long-term growth rates. Sensitivities to these assumptions are also analyzed. Valuations range from $43.62 to $97.84 per share.

1. Starbucks
Valuation - Reverse Engineering
Kr
1/28/2012
Market Value:
Price per Share $ 23.46
Price Differential
Valuation Parameters: $ 86.56 Per-share Percentage
$ 4,214 $ 63.10 72.9%
537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%
Required Rate of Return:
Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium
Book Value of Equity (most recent balance sheet)
Shares Outstanding (in millions of shares)

2. Starbucks
Abnormal EPS-Based Valuation
Forecasts:
Year +1 Year +2 Year +3 Year +4
EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45
BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74
Present Value Factors 0.953 0.908 0.866 0.825
PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26
Sum of PV of Abnormal EPS $ -
Continuing Value $ 76.63
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 84.47
Times: Mid-year Adjustment: 1.025
Value ps: $ 87

3. Starbucks
entage

4. Starbucks
Year +5 Long Run
$ 3.76 $ 3.84
$ 17.05 $ 19.93
$ 0.84 $ 0.98
$ 2.92 $ 2.86
0.786
$ 2.30

5. Starbucks
Valuation - Reverse Engineering
Kr
1/28/2012
Market Value:
Price per Share $ 23.46
Price Differential
Valuation Parameters: $ 43.62 Per-share Percentage
$ 4,214 $ 20.16 46.2%
537
Equity Cost of Capital 8.00%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%
Required Rate of Return:
Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium
Book Value of Equity (most recent balance sheet)
Shares Outstanding (in millions of shares)

6. Starbucks
Abnormal EPS-Based Valuation
Forecasts:
Year +1 Year +2 Year +3 Year +4
EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45
BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.63 $ 0.78 $ 0.96 $ 1.15
Abnormal EPS $ 1.91 $ 2.11 $ 2.20 $ 2.29
Present Value Factors 0.926 0.857 0.794 0.735
PV of Abnormal EPS $ 1.77 $ 1.81 $ 1.74 $ 1.69
Sum of PV of Abnormal EPS $ 8.64
Continuing Value $ 25.45
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 41.94
Times: Mid-year Adjustment: 1.040
Value ps: $ 44

7. Starbucks
entage

8. Starbucks
Year +5 Long Run
$ 3.76 $ 3.84
$ 17.05 $ 19.93
$ 1.36 $ 1.59
$ 2.40 $ 2.24
0.681
$ 1.63

9. Starbucks
Valuation - Reverse Engineering
Kr
1/28/2012
Market Value:
Price per Share $ 23.46
Price Differential
Valuation Parameters: $ 64.76 Per-share Percentage
$ 4,214 $ 41.30 63.8%
537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 0.0%
Dividend Payout Rate 23.5%
Required Rate of Return:
Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium
Book Value of Equity (most recent balance sheet)
Shares Outstanding (in millions of shares)

10. Starbucks
Abnormal EPS-Based Valuation
Forecasts:
Year +1 Year +2 Year +3 Year +4
EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45
BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74
Present Value Factors 0.953 0.908 0.866 0.825
PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26
Sum of PV of Abnormal EPS $ 11.01
Continuing Value $ 44.34
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 63.20
Times: Mid-year Adjustment: 1.025
Value ps: $ 65

11. Starbucks
entage

12. Starbucks
Year +5 Long Run
$ 3.76 $ 3.76
$ 17.05 $ 19.93
$ 0.84 $ 0.98
$ 2.92 $ 2.78
0.786
$ 2.30

13. Starbucks
Valuation - Reverse Engineering
Kr
1/28/2012
Market Value:
Price per Share $ 23.46
Price Differential
Valuation Parameters: $ 97.84 Per-share Percentage
$ 4,214 $ 74.38 76.0%
537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%
Required Rate of Return:
Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium
Book Value of Equity (most recent balance sheet)
Shares Outstanding (in millions of shares)

14. Starbucks
Abnormal EPS-Based Valuation
Forecasts:
Year +1 Year +2 Year +3 Year +4
EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45
BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74
Present Value Factors 0.953 0.908 0.866 0.825
PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26
Sum of PV of Abnormal EPS $ 11.01
Continuing Value $ 76.63
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 95.48
Times: Mid-year Adjustment: 1.025
Value ps: $ 98

15. Starbucks
entage

16. Starbucks
Year +5 Long Run
$ 3.76 $ 3.84
$ 17.05 $ 19.93
$ 0.84 $ 0.98
$ 2.92 $ 2.86
0.786
$ 2.30

17. Starbucks
Valuation - Reverse Engineering
Kr
1/28/2012
Market Value:
Price per Share $ 23.46
Valuation Parameters: $ 98
$ 4,214
537
Equity Cost of Capital 4.93%
One-Year Ahead Earnings per Share $ 2.54
Two-Year Ahead Earnings per Share $ 2.89
Earnings Growth through Year +5 9.2%
Long-run Earnings Growth Rate 2.0%
Dividend Payout Rate 23.5%
Required Rate of Return:
Risk Free Rate - US T-Bills 2.20%
Market Risk Premium 4%
Beta 0.65
Expected return per CAPM: 4.93%
CAPM = Risk Free Rate + Beta*Risk premium
Abnormal EPS-Based Valuation
Forecasts:
Year +1 Year +2 Year +3 Year +4 Year +5 Long Run
EPS $ 2.54 $ 2.89 $ 3.16 $ 3.45 $ 3.76 $ 3.84
BVps (lagged) $ 7.85 $ 9.79 $ 12.00 $ 14.42 $ 17.05 $ 19.93
Normal EPS $ 0.39 $ 0.48 $ 0.59 $ 0.71 $ 0.84 $ 0.98
Abnormal EPS $ 2.15 $ 2.41 $ 2.56 $ 2.74 $ 2.92 $ 2.86
Present Value Factors 0.953 0.908 0.866 0.825 0.786
PV of Abnormal EPS $ 2.05 $ 2.19 $ 2.22 $ 2.26 $ 2.30
Sum of PV of Abnormal EPS $ 11.01
Continuing Value $ 76.63
BVps $ 7.85
PV of Abnormal EPS and BVps: $ 95.48
Times: Mid-year Adjustment: 1.025
Value ps: $ 98
Valuation - Sensitivity Analysis
Variable Assumptions: sensitivity to g Sensitivity to discount rate
$ 98 $ 98
Required rate of return: 0% 3%
(from above) 4.93% 1% 4%
2% 5%
Long run growth: 2.0% 3% 6%
(from above) 4% 7%
8%
Book Value of Equity (most recent balance sheet)
Shares Outstanding (in millions of shares)

18. Starbucks
Kroger
1/28/2012
Market Value: Market Multiples
Price per Share $ 23.46
52 Week High and Low 20.98 - 35.24 Price/Earnings (ttm)
Price/Earnings (ttm, cum div)
Shares Outstanding (millions) 537 Price/Earnings (est)
Market Capitalization (millions) $ 12,598 PEG
Market-to-Book
Book Value (millions) $ 4,214
BV per share $ 7.85
Earnings (ttm; millions) $ 983
Earnings (ttm; per share) $ 1.83 9%
Dividends (ttm; millions) $ 231
Dividends per share $ 0.43
Dividend Payout Rate 42.6%
Beta average 0.60 0.73 0.7 0.3664
Analysts:
Median Target Price 31,14
Price Target Range $21 - $24
EPS Year +1 $ 2.54
EPS Year +2 $ 2.89
Next 5 Years Earnings Growth 9.20%
Long-run Earnings Growth 2.00%

19. Starbucks
12.8
13.1
9.2
1.00
3.0