This is a stock evaluation assignment: Valuing Starbucks
For this case study you will take on the role of Rachel (or Ricky) Martin, an investment analyst with Kropp Brokerage and Financial Advisors. Your job is to determine if Starbucks is a worthy investment for your new and existing clients. Furthermore, your job is to convince your clients of your position. As such, you must convince your clients that your analysis is correct and clearly explain how you arrived at the stock’s intrinsic(fundamental) value and purchase recommendation. Analysts at Kropp suggest that clients purchase a stock when the intrinsic value is as at least 15 percent higher than the current market price.
Please use Yahoo Finance, the US Treasury website, and other reliable sources to find the information necessary for this assignment. Please properly cite all information obtained from on-line sources.
In class, we discussed the discounted cash flow (DCF) method and the dividend discount model (DDM) of calculating stock price, and showed how these two methods are equivalent. In these models, the stock price is a function of dividends, growth, and required returns (with dividend projections supported by earnings projections). Hence, to complete the analysis you will need to make well justified assumptions regarding dividends, growth, and required returns. A detailed analysis of how you arrived at your assumptions regarding each of these three factors is critical. Furthermore, a strong analysis would test the sensitivity of stock price to all three of these assumptions.
In addition to the discounted cash flow method/dividend discount model method of calculating stock price, you should support your recommendation by using at least two other stock valuation methods discussed in lecture (i.e. multiplier methods such as P/E; Price/Sales; etc.).
For this assignment you should write a memo to your clients. While many of your clients are savvy investors and follow the market, none of them are well versed in finance. However, your clients are looking for advanced analysis with evidence of critical thinking. Furthermore, your clients always appreciate well written memos that make appropriate use of correct grammar and spelling. They are also very busy, so memos written in a concise manner are well received.
The course website will only allow you to submit one document. Thus, you will need to “insert” your Excel tables as “objects” in your word document before uploading your write-up to the course website.
While your memo should be concise, it should also contain a detailed appendix of your calculations. However, if you have just one page of analysis, I will not read it. You will earn a zero.
Extra Credit Opportunity:I will grade the assignments. Then I will go back through the assignments and award an additional 5 points (essentially half a letter grade) to any memo that properly references at least two relevantHarvard Business Reviewarticles and/or Wall Street Journal articles. TheHarvard Business Reviewis a magazine typically written by academics (i.e., professors and other researchers) for practitioners (i.e., managers). TheHBR, therefore, is written in a manner that is very accessible and relatively enjoyable to read. Many senior-level managers read theHBRto learn about the most cutting-edge management, marketing, human resource, and finance research. TheHBRis easily accessed via the UF Libraries website.
My teacher is very particular and checks for everything she asks for.