Starbucks and Chipotle poised for “meaningful growth” on increased automation and reduced wait times

With new CEOs and “meaningful opportunity for growth” in 2025, RBC Capital’s Logan Reich assigns an Outperform rating for Chipotle Mexican Grill (NYSE:CMG) and Starbucks (NASDAQ:SBUX) with multiple potential upside catalysts for each. Reich assigns a $70 price target on Chipotle (CMG) a 17% upside to its current level, and $115 price target to Starbucks (SBUX), 16% upside to Friday’s close.

Chipotle (CMG) has recently made significant investments in equipment which are expected to improve prep completion rates and elevate employee productivity, both of which Reich expects will improve wait times and, subsequently, store traffic. As productivity improves, margins follow. Reich thinks incremental margins can improve materially from the current 40%, which currently implies no labor leverage.

“Automation is obviously the biggest area of potential upside and while we think the automated digital make line (“DML”) will take several years before it meaningfully impacts the model, investors could get some data points which could improve confidence in a potential timeline and margin uplift,” Reich said in Friday’s research note.

Starbucks (SBUX) is also taking on improved efficiencies, which includes the implementation of a 4-minute wait time. Ongoing throughput investments can also be increasingly impactful for Starbucks (SBUX) with reduced wait times and increased traffic “critical for the stock to work.”

Value proposition against declining service is another challenge for new CEO Brian Niccol.

“Starbucks has become the McDonald’s of coffee,” one customer posted on social media, illustrating the frustration with increasingly higher prices against the unwelcoming environment.

“High inflation driving price increases combined with declining service levels has been a key driver of the company’s declining value proposition to customers,” Reich points out, but sees incremental investments like removing the upcharge for non-dairy milk and keeping prices unchanged in 2025 improving customer value perception and serving as a tailwind to increased transactions.

Analysts are mixed on both Starbucks (SBUX) and Chipotle Mexican Grill (CMG) with Seeking Alpha authors rating both stocks as a Hold while Wall Street analysts view Starbucks and Chipotle as a Buy. Seeking Alpha’s Quant rating gives both a Hold rating.