Key Takeaways
- Starbucks has reportedly explored a takeover of Chipotle, a company worth nearly $39 billion, more than three times Burger King’s 2014 purchase of Tim Hortons.
- A deal this size would pull Starbucks’ focus just as its own turnaround starts to show up in its sales and margins.
- Starbucks paid $2.77 billion in dividends against $2.44 billion of free cash flow in fiscal 2025, so a deal would likely mean issuing a lot of new stock.
- Chipotle trades at 24.3x forward earnings, near a five-year low, but its sales growth and margins have slowed this year.
Starbucks (SBUX) has worked with advisers in recent months on a possible takeover of Chipotle Mexican Grill (CMG), according to reporting from the Financial Times.
At nearly $39 billion, Chipotle would cost more than three times what Burger King paid for Tim Hortons in 2014 ($11.4 billion).
Chipotle jumped as much as 8.6% on the report, while Starbucks fell as much as 6.7%, its biggest intraday drop in more than a year.
Lale Akoner, global market strategist at eToro, summed up the worry: “Without a compelling financial case, investors may view the deal as an expensive distraction.”
I’d say that’s putting it kindly.
The turnaround is just starting to work
Starbucks’ “Back to Starbucks” plan is finally showing up in the numbers. In its fiscal third quarter, which ended June 28, global comparable store sales grew 7.9%, its fourth straight quarter of growth. Its adjusted operating margin rose to 14.4%, from 10.1% a year earlier.
That’s two quarters of margin gains after a long slide. On TIKR’s reported figures, Starbucks’ operating margin fell from 15.4% in fiscal 2023 to 9.9% in fiscal 2025…
…and management guides to an adjusted operating margin of just over 11% for all of fiscal 2026.
To me, that makes this the worst possible moment to hand the CEO a second company to fix. Brian Jacobsen, chief economic strategist at Annex Wealth Management, put it best: “Instead of jump-starting the transformation, at first blush, this seems more like jumping the shark instead.”
There’s no spare cash for this
Starbucks isn’t sitting on a pile of cash, either. In fiscal 2025, it paid $2.77 billion in dividends, more than the $2.44 billion of free cash flow it brought in…
(Cash flow has recovered since: over the last 12 months, the dividend took a still-hefty 78% of free cash flow.)
As of June 28, Starbucks had $3.9 billion of cash and investments against $13.3 billion of debt. It can’t write a $39 billion check, and borrowing most of it would stretch that balance sheet a long way.
That leaves stock. At roughly $90 a share, $39 billion works out to over 440 million new shares, or around 38% more than the 1.14 billion Starbucks has today. And that’s before any premium Chipotle’s shareholders would demand.
That’s a lot of dilution for investors who signed up for a coffee turnaround.
And it’s not like Chipotle is a bolt-on that makes a lot of sense either.
Burritos? How does that relate to coffee and breakfast?
Starbucks CEO Brian Niccol ran Chipotle until he took over Starbucks in 2024, so he knows the business better than anyone. And Chipotle is trading at a much lower valuation than it has in a while.
But it’s cheap for a reason. Its comparable restaurant sales grew just 0.5% in the first quarter and 2.2% in the second, and its operating margin fell to 15.7% from 18.2% in the second quarter. Management expects full-year comparable sales growth in the low single digits.
So Starbucks would be taking on a second turnaround while its first is still underway.
So is this a $39 billion mistake?
Starbucks finally has sales momentum, a dividend that’s only just back inside its free cash flow and a margin still well short of where it was in fiscal 2023. A $39 billion (or again, likely more) deal paid mostly in stock would put all three at risk.
Of course, nothing has been formally announced. Starbucks declined to comment to the FT or to anyone else and with any luck it’ll stay theoretical only.
So what is Starbucks stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Starbucks could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
