Starbucks Or McDonald’s: Which Restaurant Stock Is A Better Buy?

 | Dec 02, 2020 06:23

The COVID-19 pandemic has delivered a severe blow to global restaurant chains. These companies suffered massive losses this year as customers stayed indoors and the pandemic forced closures of their operations. 

But as investors pin their hopes on vaccine success and the economic reopening next year, restaurant operators are being closely watched as a barometer of consumers’ willingness to resume their normal lives and reopen their wallets.

Today, we've shortlisted Starbucks (NASDAQ:SBUX) and McDonald’s (NYSE:MCD) to see which stock offers a better value.

1. Starbucks/h2

The popular coffee-shop chain has faced strong headwinds since the outbreak of coronavirus as Americans changed the way they purchase coffee and experience restaurants.

Last month, the giant reported global same-store sales fell 9% during the company’s fiscal fourth quarter, marking the third straight quarter of overall declines. That dismal sales performance, however, is showing some signs of turning around in recent weeks. 

For example, the drop in sales has shrunk since the spring, when much of the world was in lockdown. In the U.S., comparable sales fell 9%, beating expectations. Management, which resisted providing guidance for a couple of quarters, is now confident that the worst is over.

The chain forecasts global comparable sales will expand between 18% and 23% during the first quarter and 2021, with expected growth as high as 32% in China. The recovery at home will be a little slower, with comparable sales in the Americas rising between 17% and 22% in the first quarter and through next year.

Starbucks CEO Kevin Johnson said the following in an email:

“Our strategies are working and I am optimistic that we will emerge from the COVID-19 pandemic as a stronger and more resilient company.”

But some analysts fear that it may take a longer time for food chains to fully recover in the post-pandemic world, where some consumers are likely to alter their behavior permanently and avoid visiting restaurants. So this is not the right time to bet on the coffee-chain shares.

Starbucks shares, after plunging 36% in March, have fully recovered their losses since then. They closed Tuesday at $98.82, up more than 12% during the past month.