Cava Group, the popular Mediterranean fast-casual restaurant chain, is enjoying a surge in popularity, with its stock reaching new highs. This growth is fueled by impressive revenue and unit expansion, leading Wedbush analyst Nick Setyan to reiterate his optimistic outlook for the company. Setyan maintains an “Outperform” rating for CAVA stock, raising his price target from $100 to $120.
Setyan believes Cava’s financial outlook is bright. He highlights that the company’s recent guidance for fiscal year 2024 may be conservative, indicating potential for exceeding expectations. He also notes Cava’s improved visibility regarding its short-term and long-term financial performance.
“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 stated in an investor note.
Setyan’s confidence in Cava’s growth stems from several factors. He believes the company’s same-store sales (SSS) growth and EBITDA estimates could be conservative, pointing to the potential for even stronger performance. In the second quarter, Cava reported a remarkable 14.4% SSS growth, surpassing the company’s initial guidance range of 4.5% to 6.5% and raising it to 8.5% to 9.5%. Setyan predicts this indicates low double-digit SSS growth for the rest of 2024, leading him to revise his full-year SSS growth estimate upwards from 6.8% to 9.7%.
“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 ambitious growth plans are also driving investor enthusiasm. The company has increased its unit growth guidance for the full fiscal year to a range of 54 to 57 new locations. Setyan points out that these new restaurants consistently exceed expectations in terms of average unit volume and profitability.
“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.”
Cava’s recent second-quarter results reinforced its impressive performance. Revenue and earnings per share exceeded analyst expectations. The company’s strong SSS growth and aggressive store expansion plans continue to highlight its potential. This positive performance has resulted in a significant stock price surge, with CAVA shares rising 139% over the past year.
“Our results in the second quarter continued to demonstrate the strength of our category-defining brand and our unique and compelling value proposition,” said Cava Group CEO Brett Schulman.
Cava’s success story began with its initial public offering (IPO) in June 2023, with shares priced at $22, exceeding the initial range of $17 to $19. The company was valued at $2.5 billion at the time of its IPO and has since grown to a market capitalization of over $11 billion.
Often compared to Chipotle Mexican Grill, Cava has carved out a niche for itself in the fast-casual restaurant space, earning the nickname “Mediterranean Chipotle.” Since its IPO, Cava has expanded rapidly, increasing its store count from around 260 to 341. This robust growth is expected to continue, with the company aiming to have 1,000 stores open in the U.S. by 2032.
Investors are hopeful that Cava’s stock will follow a similar path to Chipotle’s success story. Chipotle shares have soared 226% over the past five years and over 6,000% since its own IPO in 2006.
On Friday, Cava stock saw a significant jump of 14.04%, closing at $115.93, showcasing the strong investor confidence in the company’s growth trajectory. This represents a remarkable 187.23% increase year-to-date in 2024.
