Cava Group Stock Hits All-Time Highs Post Q2 Earnings: Analyst Says 'Premium Is Justifiable'

Mediterranean fast-casual restaurant company Cava Group CAVA has more upside with the stock at all-time highs thanks to revenue and unit growth, an analyst says after second-quarter financial results.

The CAVA Analyst: Wedbush analyst Nick Setyan reiterated an Outperform rating and raised the price target from $100 to $120.

The Analyst Takeaways: Fiscal year 20024 guidance from Cava could be conservative, Setyan said in a new investor note.

The analyst said Cava showed improved visibility on the short-term and long-term outlooks for the company's financials.

"We view CAVA as one of a handful of publicly traded restaurants positioned to deliver positive annual transaction growth over the longer-term, with realistic long-term revenue and unit growth targets," Setyan said.

Setyan said same-store sales (SSS) growth and EBITDA estimates from the company could prove to be conservative.

Read Also: Be Choosy When It Comes To Restaurant Stocks, But Pick This Fast-Casual Chain: Analysts

Cava reported SSS growth of 14.4% in the second quarter. The company's guidance for SSS was raised from a range of 4.5% to 6.5% to a new range of 8.5% to 9.5%. The analyst said this implies low double-digit SSS growth for the rest of 2024.

Setyan's full-year SSS growth estimate is 9.7%, up from 6.8%.

"We continue to view the maturation cycle of new units, CAVA's attractive value proposition, growth in advertising, increased brand awareness, menu innovation, growth in digital, a new loyalty program, and throughput-focused operational initiatives as drivers of SSS growth in the near- to medium-term."

Cava's unit growth guidance was raised to a new range of 54-57 for the full fiscal year. The analyst said new restaurants continue to exceed expectations for average unit volume and margins.

"Given our belief that CAVA is positioned to sustain positive transaction growth and to gain transaction share over the longer term, even relative to growth peers, we believe such a premium is justifiable."

Why It's Important: Cava's second-quarter results saw revenue and earnings per share each beat estimates from analysts.

SSS growth and new store openings continue to shine a bright light on the company and the stock, up 139% over the last year, as seen on the Benzinga Pro chart below.

"Our results in the second quarter continued to demonstrate the strength of our category-defining brand and our unique and compelling value proposition," Cava Group CEO Brett Schulman said.

The company went public in June 2023 at a price of $22 per share, up from a pricing range of $17 to $19. The company was valued at $2.5 billion at the time of its IPO and is now worth more than $11 billion.

Cava has often been compared to fast casual restaurant leader Chipotle Mexican Grill CMG, sometimes earning the nickname of the "Mediterranean Chipotle."

When the company went public, it had around 260 locations. Around a year later, the company has 341 locations open and is opening stores at a high level of growth and seeing strong results from the new stores.

The company plans on having 1,000 stores open in the U.S. by 2032. Chipotle has over 3,000 stores in the U.S. for comparison.

Investors will be hoping Cava's stock can continue to perform like that of Chipotle. Shares of Chipotle are up 226% over the last five years and up more than 6,000% since going public in 2006.

CAVA Price Action: Cava stock is trading up Friday by 14.04% at $115.93 Friday, versus a previous 52-week trading range of $29.05 to $117.33. The stock is up 187.23% year-to-date in 2024.

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