In a surprising twist, Chipotle Mexican Grill’s (CMG) CEO Brian Niccol is set to depart and take over the helm at Starbucks (SBUX). Investors are now faced with the conundrum of deciding between these two retail restaurant giants as Niccol is poised to lead Starbucks in September.
Chipotle has demonstrated remarkable performance under Niccol’s leadership, with its stock surging over +200% in the past five years, in stark contrast to Starbucks’ modest -2% growth. However, past achievements do not guarantee future success, prompting investors to deliberate on the better investment choice currently.
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Growth Prospects
Following a monumental 50-1 stock split in June, Chipotle is anticipated to witness a 20% growth in annual earnings in fiscal 2024 to $1.08 per share, compared to $0.90 per share last year ($45 per share/50). Moreover, a further 18% EPS growth is projected in FY25.
On the revenue front, Chipotle’s total sales are expected to climb by 15% this year and forecasted to surge by another 13% in FY25 to reach $12.79 billion.
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Conversely, Starbucks’ yearly earnings are predicted to remain relatively stable in FY24 but are projected to increase by 11% in FY25 to $3.94 per share. Total sales for Starbucks are slated to grow by 1% in FY24 and are expected to expand by 6% in the following year to $38.84 billion.
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Valuation Metrics
While Chipotle may have the upper hand in growth, Starbucks’ valuation appears more appealing. Currently, SBUX trades at 26.6X forward earnings, close to the S&P 500’s 23.3X. In contrast, CMG trades at a significant premium to the broader market at 49.7X.
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Financial Health
Financial stability plays a crucial role in investment decisions, and while Starbucks holds more cash reserves, Chipotle boasts a stronger balance sheet.
To illustrate, Chipotle currently holds $1.49 billion in cash & equivalents with $8.92 billion in total assets, compared to $5.2 billion in total liabilities.
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On the other hand, Starbucks has $3.39 billion in cash & equivalents but carries $38.04 billion in total liabilities, against $30.11 billion in total assets.
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Final Perspective
Undoubtedly, Starbucks faces the challenge of revitalizing its operational performance as financial insolvency looms over its balance sheet.
Nevertheless, under Brian Niccol’s guidance, there is optimism that he can elevate Starbucks to the high standards he previously set at Chipotle. Currently, both Starbucks and Chipotle stocks hold a Zacks Rank #3 (Hold), offering promising long-term investment opportunities, although better entry points may arise in the future.
