DANGER: The Starbucks Chipotle Stock Merger

Well, a stupid idea has just crossed headlines, front page of the Financial Times indicates that now Starbucks has explored a takeover of Chipotle. This is probably one of the stupidest forms of desperation I could ever imagine, but I will say if it happens, it's probably going to be really beneficial really fast to one of these two stocks. Let's first of all go through a little bit of color on these financials because let's be real here. Chipotle isn't exactly cheap company. Now, its stock has come down a lot since the peak of the growth phase in 2024 with Chipotle lanes coming, you've got this insane expansion of a business. I love Chipotle. I think they're a great product. I think they're overall very good. Uh, but they have collapsed in their valuation by about 60%, which is pretty extreme. I mean, this went from almost a hundred billion-dollar company down to about a 42 billion-dollar company. Starbucks, I think is a little desperate right now. Starbucks is in part desperate because their growth has been sideways because of their failed China experiment. They tried during COVID to explode their exposure to Chinese market. And the stock actually initially did really well in 2021 under this idea that everything's reopening, China's reopening, this is going to go great. And then it turns out the Chinese aren't going to spend five dollars on a cup of freaking coffee. So, what a surprise. Starbucks decided we made an oopsie-doopsies. We can't sell American coffee in China when the Chinese are willing to have buy cheaper coffee that sounds luckier, ala Luckin Coffee. And so now Starbucks has decided via, you can't make this up, a disposal group to dispose of their Chinese operations. Now, they're desperate to find another vertical of operations. I kid you not. In the first quarter of fiscal 2026, the company announced an agreement to form a joint venture with Boyu Capital to operate Starbucks retail in China, aka the Disposal Group. This is in an actual SEC filing. They call it the Disposal Group. It's that bad. It's a dumpster fire. So then I'm like, all right, how much money does Starbucks even have to go try to acquire Chipotle and how's it going to hit the stock? Spoiler alert, they ain't got any money. They're broke. Starbucks is broke. They screwed up on experiment number one and now they're damn broke. I've got $8.1 billion of bills and that's me adding back in their store card liability, okay? So I got $8.1 billion in bills. I don't know what happened here, but if I go on up over here, there's not a lot of cash. I got $3.4 billion of bills and accounts receivable of 1.3. I'm going to ignore inventories because we're going to need those for those card liabilities over here. So I'm calling those sort of a wash. Okay? That only gives me $4.7 billion. Even if I were generous and added in all the inventories, I still don't have enough money to pay my bills. So over the next 12 months, Starbucks does not have enough money to pay its bills, which is crazy. Now yeah, they do have a free cash flow of around $3 billion a year and that's what they're hanging their hat on. They're like, all right, well if we add in our free free cash flow over the next year, then we'll have enough money. Fine. That might be true, but it doesn't give you enough money to actually go buy Chipotle because you're broke. This is a problem. Now if I look at their income statement, their total revenues are down 1.4% year-over-year. Their operating expenses are down closer to 2%, which is actually a good thing. It means that they are getting a little bit more efficient. So they're trying to stabilize. I see it. But honestly, for a company with 10% margins trading for a 1.8 PEG ratio, a 35 PE ratio, And not a good deal. It's not It's not a good deal. Like there are like I could buy Broadcom for almost a third of this valuation. And like have AI upside. Or I could go buy Corning Glass for this valuation. Corning's sitting at about a 1.7 PEG. And I could get fiber optic exposure up my butt, which I'd much rather have than this. Okay. That is Starbucks. Now, if we look at Chipotle, at least the numbers here are better. Okay? We still have growth. Growth 9.3% total operating expenses are up 12.7% though. So our net income's actually falling at Chipotle. So both of these companies are at a very mature phase of the business cycle, where both of the companies have grown a lot. Starbucks then got slapped in the face and failed in China, and now they have a disposal group. And Chipotle's kind of maxed out its growth where you're kind of saturated where Chipotles are. They're like all over the place. And so apparently now the idea is if you take sort of, you know, a mature business, Starbucks, and combine it with another mature business, we're somehow going to have a better business. Sort of like how Burger King bought Tim Hortons. Now, Tim Hortons is fantastic. Timmies is the greatest coffee that exists in the world. Uh anyway, it's Canadian coffee. Some people make very bad jokes that it is a different country's coffee, but we're not going to make those jokes here. So what's more important is that uh we think about what came out of that. Really, it's sort of like acquiring Tim Hortons just gave Burger King's ownership group Tim Hortons. You didn't actually see Tim Hortons in Burger King's as far as I'm aware of. You certainly didn't see like rebuilt facilities. Like I don't actually think we're going to see Chipotle lines at Starbucks. I mean, maybe you could see some Starbucks branded drip coffee at Chipotle. It's probably not a bad idea if they can sell you a high margin $5 drip coffee, but I don't think you're getting your special fancy latte at Chipotle anytime soon. And if you do, it's even more bearish for this potential combined company. Because it's very complicated when you start adding different lines of business to people who are working minimum wage that are really good at doing one thing. Like to put rice on burrito. Put beans on. You now want to train the rice and beans person to go make you a fancy latte, it just ain't going to work, okay? Different kind of person, different kind of mentality, everything's different here. And this is why historically when companies start adding more and more verticals and they get their menu to be too complicated, they go bankrupt. I have at least some experience working in the restaurant industry. First place I worked, and maybe maybe I'm to blame. First place I worked was Jamba, well, one of the first places I worked was Jamba Juice. And then as soon as they started expanding the expanding their menu, they went bankrupt. Lauren, my wife, worked at a coffee shop. As soon as they started expanding their menu, they went bankrupt. Then worked at Red Robin, and they almost went bankrupt, but they got bailed out by JP Morgan on a lucky refinance and a resurgence in malls, cuz they've got a lot of leases in a lot of dead malls, and they got really lucky that malls were actually picking up again. Uh but anyway, uh you know, Red Robin was trying to do that as well. You know, they got into like pizzas and overcomplicating their menu. Cuz every time these businesses overcomplicate their menu, it's the kiss of death. Crumbl Cookies is doing it now. Crumbl Cookies are like, now we did so well with cookies, we're going to start doing varieties of cakes or whatever. It's like, that's the kiss of death. Every single time, that is the kiss of death. That marks the peak. Every time. So, I am very bearish on this sort of combination. However, I do think it could be bullish for Chipotle stock. So, the reason I think it could be bullish for Chipotle stock is because to convince Chipotle shareholders to do something as as combine Chipotle and Starbucks, you're going to have to pay a beautiful premium for Chipotle. And so, in the near term, this deal just put a technical floor on Chipotle stock and it has upside beyond that. So, for example, if I just throw a very quick I'm trying to find a good technical spot. I'm having a really hard time throwing a We're going to throw a little gray line over here. I got This is on the weekly over here. I've got a top over here. This is at 3162, which is roughly where we sit now. I get a top. I get a top. I get a top over here. Uh dance around the numbers here, and you can see here it's almost a floor. Right? Floor, floor. It's messy. It's a messy little gray line right here, but I think this deal puts a floor at 3162 for this stock for the time being until the deal fails because it's such a stupid idea. But, if the deal were to go through, I actually think that this is probably going to go through closer to $46. No guarantees, of course, and not personalized financial advice, but I think for the Chipotle shareholders to be okay with this, they need to get compensated at $46 a share. That would be my guess. That would be about a 43% premium. Now, Starbucks is going to have to raise a lot of debt to do that cuz they are broke. So, they're going to have to sell shares and they're going to have to issue debt. So, bearish Starbucks, bullish Chipotle, bearish the whole damn thing put together. Now, the CEO of Starbucks, and this is where it gets interesting, the CEO of Starbucks is actually the old and ex-CEO of Chipotle. So, apparently he misses Chipotle so much now he wants to do something incredible after this whole like China failure that he was, you know, hired to kind of help build him out of. He's got to try to do something and I think he's bored and so they think this is somehow a good idea. Let's just go acquire the company that I used to work for. Meanwhile, Starbucks literally pays this guy to commute on I'm pretty sure it's a Gulfstream jet to his Seattle office. I kid you not. The guy lives well, it's kind of useful at Chipotle headquarters in Newport Beach, California. Beautiful area by the way. This is a fantastic place to live. Newport Beach, Irvine, beautiful. You just have to deal with the commie fornication politics, but even then these areas are great. Uh and then Starbucks is in Seattle. And so while they built an executive office when he first got hired, the guy was basically commuting on again what I'm pretty sure is his Gulfstream back and forth uh to commute to Starbucks offices. Uh anyway, kind of crazy uh and um that's my overall take on this. So yeah, there's a note here. Starbucks eliminated the $250,000 annual cap on the CEO's personal and non-business use of the jet. Required to use the private aviation for all air travel following a security review. So in other words, now previously, Nicole had the CEO had to reimburse Starbucks for personal jet use over $250,000 a year. Now they're like, "No, no, no, man. You know what? Because of you know, threats against CEOs these days, you get to use this jet as much as you want for even your own personal things. So if you want to go to Hawaii you could go do that." Apparently, it's tail number N721L. N721L. Let's go take a look at this puppy. 2007 Gulfstream. That's an old puppy. Damn. I don't I I'm actually surprised it's a 2007. Now, it's not exactly the newest. I mean, this those things are probably worth like what, 10 mil maybe? Uh but still it's still a Gulf Stream. And operating it is the expensive part, right? It's it's not it's not the fuselage. Uh but anyway, that's pretty cool. Uh but uh all that aside bearish Starbucks bullish Chipotle and very bullish the fact that the coupon code over at reinvestone.com is expiring today. Uh is actually really, really exciting about the product that we've got over here, reinvestone superintelligence all-in-one terminal coming out later this year. Uh you get all of this. I mean, look at all of this that you get, the alpha report, the trade alerts, the private live streams, all nine courses, [music] the uh agentic blueprint, the consumer blueprint that comes at the beginning of the year, reinvest homes, reinvest stocks, reinvest research. And you can see all of the details right here. It's an incredible product and so many course members are already upgrading to this as well, which we think is a great testament to what we've got going on. But go check it out everyinvestorone.com. [music] If you liked that video, check this one out. I think you're going to love it. >> Why not advertise [music] these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Paffrath there, financial analyst and YouTuber, Meet Kevin. Always great to get your take.