CAVA Can Outgrow Expectations With Strong Unit Economics And Market Headroom, Analyst Says

BofA Securities analyst Sara Senatore initiated coverage on the shares of CAVA Group Inc CAVA with a Buy rating and announced a price forecast of $112.00.

Restaurants that maintain strong returns on investment over time can sustain high valuations and benefit investors, said the analyst.

Similar to top-performing peers Chipotle Mexican Grill Inc and Texas Roadhouse Inc, CAVA has built a successful model that balances customer value with strong financial growth.

Amid concerns over consumer spending, CAVA’s stock has declined, even as overall restaurant demand remains stable.

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CAVA has the necessary demand and capacity to increase unit volumes. Growth in customer numbers and spending frequency can be driven by advertising, menu innovations like steak, and new side options, noted the analyst.

A revamped loyalty program is expected to boost repeat visits and higher spending. Additionally, CAVA’s efficient assembly-line model provides the capacity to meet rising demand.

CAVA’s restaurant margins and returns lag behind CMG due to higher labor and occupancy costs. However, improved sales volumes can help narrow this gap.

The company has raised its year-two margin target to 22% (from 20%) and its average unit volume target to $2.5 million (from $2.3 million), suggesting margin expansion of ~20 basis points per percentage point of same-store sales growth, aligning with industry standards.

CAVA aims for 1,000 U.S. locations, but market analysis suggests it could support over 2,200. This estimate is conservative, as it’s based on CAVA’s relatively low penetration in its densest market, Washington, D.C., opined the analyst.

Compared to CMG’s footprint, CAVA’s top 20 markets alone could accommodate more than 1,000 locations, indicating significant expansion potential beyond its current target.

The analyst’s rating also arises from the fact that CAVA has the ability to deploy capital at high rates of return for at least a decade.

Price Action: CAVA shares traded lower by 0.03% at $85.82 at last check Monday.

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