Market Multiple Valuation

1. Market Multiple Valuation By Mitchell Schmitt

2. Agenda • Consideration of weaknesses when using market multiples • How Starbucks fits into the Processed and Packaged Goods Industry • Calculation of Equity Multiples (Book Value, EPAT, Net Income) • Calculation of Enterprise Multiples (Net Enterprise Assets, Sales) • Buy/Sell Recommendation

3. Weaknesses of Market Multiples • Strength of analysis depends on comparability of firms • Depending on properly valued industry • Over/Under Valuation is not eliminated • Differing accounting procedures across companies could impact analysis

4. Processed and Packaged Goods • Makes up 10-12% of revenues for Starbucks • Lack of comparability to Mondelez, Nestle, and Green Mountain • No in-store customer facing coffee sales • Dunkin Donuts and McDonald’s may prove to be more accurate multiples

5. Starbucks Current Position • Currently trading at $74.98 • 754 Million Shares Outstanding • Market Capitalization of $56,505 Million • Nearly $20 of growth over past year

6. Yahoo Finance

7. EPAT Multiple *Mondelez International multiple was excluded as an outlier (180)

8. Net Income Multiple

9. Book Value of Equity Multiple

10. Sales Multiple

11. NEA Multiple

12. Possible Industry Specific Mult. • Fellow Industry members used R&D multiple (Starbucks’ Financial Statements made no mention of R&D) • Considered pounds of processed coffee sales and PPE multiples • Concluded these numbers would not provide accurate valuation

13. Buy/Sell/Hold Recommendation • Average Equity per share- $37.29 (Excluding NEA Multiple) If I felt confident in this multiple analysis, my recommendation would be to sell. Due to the comparability issues described previously, very little stock should be placed in these calculations.

14. Other Considerations • Reformulating for Dunkin Donuts and McDonald’s • Segmenting the packaged coffee sales of each firm in the industry

15. Questions?