Cava Group Inc.’s stock has surged since it started life as a listed company last month, and analysts generally agree further gains are on the way, with some comparing the fast-casual restaurant chain with another investor favorite: Chipotle Mexican Grill Inc.
(Bloomberg) — Cava Group Inc.’s stock has surged since it started life as a listed company last month, and analysts generally agree further gains are on the way, with some comparing the fast-casual restaurant chain with another investor favorite: Chipotle Mexican Grill Inc.
Shares rose 11% in New York on Monday as the expiration of the customary quiet period brought a flurry of initiations from Wall Street, with most recommending investors buy Cava stock. All analysts tracked by Bloomberg set a price target exceeding Friday’s close of $39.62, with Baird the highest at $50.
The group has drawn comparisons with Chipotle, which has gained 51% this year, reaching a record high on June 30. Given the many similarities, Morgan Stanley analysts led by Brian Harbour said Chipotle was the “obvious analog” for Cava.
Chipotle is “the most successful fast casual brand to date, and provides a template for what the bull case could look like for Cava over the coming decades,” the analysts wrote in a note. However, they initiated Cava at equal-weight, seeing the near-term fundamentals and potential to scale as already priced into the stock. Cava shares ended Monday’s session at $44, above the analysts’ $43 price target.
Back in June, Cava almost doubled on its trading debut, surging 99% from the IPO price to give the company a market value of $4.9 billion.
“Experience would suggest there will be other entry points” for investors, the Morgan Stanley analysts said. As Cava reaches the 350-to-500 store range, more “critical proof points” will be provided, which they note will help in setting out a bull case with higher forecasts for accumulated unit value, margins and total addressable market. The group currently has more than 250 outlets, according to data on its website.
“Even for Chipotle, Cava’s bull case comp, there were bumps along the way that created entry points for long-term investors,” the analysts said.
More broadly, analysts are positive on the expansion potential of the chain specializing in Mediterranean cuisine. While Washington, DC-based Cava sees potential for more than 1,000 restaurants in the next decade, analysts are predicting even more could be possible, with Jefferies seeing a “blue sky” scenario being near that of Chipotle’s 7,000 units in North America.
“All in all, we believe Cava to be a unique concept and investment opportunity, and we can envision a scenario where the stock can work higher from here, as the year progresses,” Piper Sandler’s Brian Mullan and Aisling Grueninger wrote in a note, rating the stock overweight.
–With assistance from Aashna Shah and Katrina Lewis.
(Updates for market close throughout.)
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