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Aswath Damodaran: Dealing with age: Intel, walgreens and Starbucks

In this article, Aswath Damodaran, follow up on his latest book on corporate lifecycle by examining three companies: Intel, Walgreens, and Starbucks. Companies that all face challenges as they age, and their growth slows. As Aswath puts is – Aging is inevitable for companies, and we need to better recognize CEOs who manage decline or shrinkage well, rather than just celebrating high growth.

Here are the key takeaways:

  • Companies go through a corporate life cycle, and those in the decline phase face difficult choices on whether to deny problems, make desperate moves, shrink, or attempt a rebirth.
  • Intel’s revenue growth and margins have deteriorated significantly in recent years as it falls behind competitors like TSMC and Nvidia, despite heavy investments to catch up. Aswath believes Intel needs to accept a smaller role in the market.
  • Walgreens is struggling with little growth and shrinking margins in the challenging pharmacy retail business.[1] Its best path may be to shrink to its most productive stores while reducing debt.
  • Starbucks’ growth has slowed but is still robust, though it has lost its visionary narrative. Damodaran is skeptical the new CEO can reignite high growth and margins to justify the current valuation.

In investing, it is true that the glory gets reserved for the Mag Seven and the FANGAM stocks, companies that seem to have found the magic to keep growing even as they scale up, but we should also pay attention to companies that find their way to deliver value for shareholders in bad businesses.

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The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

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