According to The Fly, DA Davidson sees just 20% odds of the reported deal being completed, while analysts remain divided on the deal’s strategic benefits and potential risks.
- According to The Fly, DA Davidson maintained a ‘Neutral’ rating and $110 price target on Starbucks.
- TD Cowen and RBC Capital questioned the deal’s likelihood and strategic rationale, while Stephens highlighted potential real-estate and operating-efficiency benefits.
- Starbucks reiterated its focus on its ‘Back to Starbucks’ strategy in a statement to The Wall Street Journal, following a report that it had explored a potential acquisition of Chipotle.
Starbucks (SBUX) shares drew investor attention Friday after DA Davidson assessed the prospects of a reported potential takeover of Chipotle Mexican Grill (CMG), according to The Fly.
SBUX shares traded 1.46% lower, while CMG shares were down 3.33% at the time of writing on Friday.
DA Davidson Sees Low Odds For Reported Deal
DA Davidson analyst Matt Curtis estimated roughly a 20% probability that the reported deal would be completed, while maintaining a ‘Neutral’ rating and a $110 price target on Starbucks, according to The Fly.
Curtis identified a potential growth avenue for Starbucks and the possibility of Chipotle gaining access to Starbucks’ infrastructure and expertise. However, he noted limited obvious overlap between the two businesses.
Earlier, The Financial Times reported that Starbucks had worked with advisors in recent months on a potential takeover. The report did not establish whether a formal offer had been made or whether the discussions would advance.
Analysts Remain Divided On Strategic Fit
The latest assessment follows differing analyst views published Thursday on the potential deal, according to The Fly.
TD Cowen analyst Andrew Charles described the deal as a low-probability outcome. According to The Fly, TD Cowen viewed pursuing an acquisition potentially valued at more than $44 billion as inconsistent with CEO Brian Niccol’s focus on Starbucks’ U.S. turnaround. The firm also acknowledged Niccol’s familiarity with Chipotle and his track record at the business as reasons he might evaluate the opportunity.
RBC Capital questioned the strategic rationale for a potential acquisition, arguing that the businesses have limited overlap, The Fly reported. Although RBC acknowledged potential general and administrative and supply-chain savings, it viewed those benefits as insufficient to justify an acquisition. The firm also said investors could view a deal as diverting management’s time and attention from Starbucks’ turnaround.
In contrast, Stephens analyst Jim Salera identified potential opportunities for shared real estate development and operating efficiencies, according to The Fly. Salera noted that the median Chipotle location is approximately 0.18 miles from the nearest Starbucks. He also cited customer overlap as an opportunity to develop a broader rewards platform and leverage consumer data.
Starbucks Reaffirms Its Existing Strategy
Following the report about the potential deal, Starbucks said in a statement to The Wall Street Journal on Thursday that its team was “laser-focused on executing our Back to Starbucks strategy.” The company also said it had “strong momentum and confidence in our long-term growth potential.”
The strategy, led by CEO Brian Niccol, focuses on bolstering sales and improving the café experience.
How Retail Views SBUX, CMG
Retail sentiment on Stocktwits for CMG stock remained ‘Extremely Bullish’ with ‘Extremely High’ message volume in the past 24 hours. Whereas retail sentiment around SBUX turned ‘Bullish’ with ‘High’ message volume.
SBUX shares have gained 8% year-to-date, while CMG shares have declined more than 16% over the same period.
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