Is Starbucks’s Enterprise Multiple Trading High?

Valuation Multiples of Key Restaurant Players

(Continued from Prior Part)

EV-to-EBITDA multiple

By using an EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) valuation multiple for these companies, we’re eliminating the effect of how companies calculate depreciation, which could be accelerated in the initial years compared to others. We’re also making the comparison capital structure neutral. EV is calculated as the market value of equity plus market value of debt less cash.

Where are Yum! Brands and Starbucks trading?

Yum! Brands (YUM) has a net debt of $2.7 billion and a net-debt-to-EBITDA ratio of 1.2x. Yum! Brands is currently trading at an EV-EBITDA multiple of 12.4x. Historically, the company has traded in the range of 10.5x to 15x, so like PE (price-to-earnings) ratio, Yum! is currently trading close to the historical mid-point of its historical EV-EBITDA multiple.

Starbucks (SBUX) has a net debt of $204 million and a net-debt-to-EBITDA ratio of 0.05x, which is almost insignificant compared to the company’s market cap of $84.7 billion as of the date of this writing. Starbucks’s current EV-EBITDA multiple stands at 17x, which is close to the company’s historical high point of 17.6x and similar to its PE.

The Consumer Discretionary Select Sector ETF (XLY) holds 3% of Starbucks as a percentage of its total portfolio.

Chipotle and Panera

Both Chipotle (CMG) and Panera (PNRA) have no debt. Chipotle is trading at an EV-EBITDA multiple of 19.8x and has historically traded anywhere between 16x and 23.7x. Chipotle is trading at the mid-point of its historical range. Similarly, Panera is trading at 11.8x, close to the mid-point of its historical range of 9x to 14.2x.

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Browse this series on Market Realist:

• Part 1 - Valuation Multiples of Key Restaurant Players

• Part 2 - Has the PE Multiple for Starbucks Recovered from Recent Turmoil?