Starbucks Corporation (NASDAQ: SBUX) and Chipotle Mexican Grill, Inc. (NYSE: CMG) have both entered the “special situation” investment classifications. They are considered special situations for completely opposite reasons, but those are 100% intertwined. With nearly a 100% certainty that lower interest rates coming, the question to ask — which stock may do better as interest rates drift lower?
Chipotle should be the obvious answer on the surface. After all, it’s just easier for one person to spend more money at Chipotle on a single visit. The flip-side is that Starbucks commands a higher frequency of visits per week by its loyal customers. That used to be the case at any rate. One problem that the company faces is that going into a Starbucks store just doesn’t feel as fun as it used to. There is not as much of a “destination” feel and in some ways looks and feels more like a cafe set up in a medical clinic with so much white and cream everywhere. Starbucks’ investors are no longer seeing those endless growth gains from prior years.
DID STARBUCKS ALREADY PETER-OUT?
Starbucks finally made the bold move to listen to activists. Strategic investors now have to decide how they want to handle this massive change that has been delivered.
The day that Starbucks ousted CEO Laxman Narasimhan, effective immediately, in favor of Chipotle CEO Brian Niccol (effective September 9, 2024) the stock rose a sharp 24.5% at $95.90 on Tuesday (now $95.32 adjusted for the dividend). That was up 34% from its 52-week low of $71.55 seen in July and it was a one-day gain of 24.5%. The problem now is that Chipotle’s stock is still close to $94.00.
CHIPOTLE TRIED TO RECOVER, BUT…
Chipotle shares took the CEO exit news badly. Its shares closed down 7.5% (-$4.19) at $51.68 after briefly trading as low as $48.00 at one point on the day of the biggest c-suite news of 2024. Chipotle’s shares had traded as high as $69.26 in 2024 around its stock split, so now its shares are down just over 25% from its peak earlier this summer.
Chipotle then recovered to $53.97 and hit a daily high of $54.32 after the first day of investors digesting the news. Despite closing at $53.71 last Friday, this stock hasn’t hit the post-selling high of $54.32 since then.
WHAT OGGONOMICS SEES
Oggonomics outlined the full spectrum of analyst calls in the days after the CEO changes were announced. The report also covered actual fundamentals of each company. https://oggonomics.com/do-oggonomics-bulls-now-chase-starbucks-or-stick-with-chipotle/
FinViz shows a consensus analyst target price of $97.88 for Starbucks and $63.12 for Chipotle. If that proves to be true, then Chipotle may have more upside from this time since Starbucks already priced in such a strong recovery when the Niccol news broke.
The long and short is that it is still too soon to decide whether Starbucks or Chipotle is a better stock for the next year. It's also too soon to decide whether lower interest rates will help one of these companies more than the other. Starbucks has a $106 billion market cap, so it has more to lose than Chipotle's $73 billion market cap. Then again, Chipotle also still has much more obvious growth ahead as it aims to double its store count in the coming years (if a new CEO decides to chase that plan) — and if it needs more capital to fund growth lower interest rates would mean more for Chipotle.
