‘Like Starbucks and Chipotle in the past’: Wall Street is bullish on ‘rare category creator’ Cava
‘Like Starbucks and Chipotle in the past’: Wall Street is bullish on ‘rare category creator’ Cava
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CAVA Group Inc (NYSE:CAVA) shares are trading over 4% higher on Monday after several Wall Street research firms initiated mostly positive coverage on shares of the fast-casual restaurant chain.
Cava stock attracted headlines 3 weeks ago when it made its public market debut on the New York Stock Exchange. Shares surged as much as 117% after closing at $43.78 per share on the first trading day, while the company priced its IPO shares at $22.
“You’re seeing the inflection point in the business, and all of that robust structure we’ve invested in, the restaurant growth, starting to take hold and drive tailwinds to the business,” CEO Brett Schulman told CNBC.
Cava sold 14.4 million shares to raise about $318M. While the IPO valued the restaurant chain at $2.45 billion, the business is valued by the market at $4.5B through Friday’s close.
Out of 8 ratings that Cava stock has received so far, as many as 6 are Buy or equivalent. JPMorgan analysts said Cava is “well capitalized, de-risked, well managed model set for LT national expansion,” while TAM warrants an Overweight rating.
“We agree with the market’s implicit positive view on the medium/longterm story of CAVA. We view this business as this well-designed operating platform and broadly-appealing consumer offering that can expand from its current 263 locations in 22 states to scale into a national brand built on a series of high ROI company-operated restaurants,” they said in an initiation note.
On the other hand, analysts at Citi and Morgan Stanley are on the sidelines, mostly due to swollen valuation. Citi analysts said that Cava “shares [are] resting atop mount Olympus of restaurant valuation.”
“With shares trading at 60x our 2024E EBITDA, several years until CAVA is FCF positive (we estimate roughly breakeven in 2025), and the risk of a choppy macro backdrop, we are on the sidelines until there is more evidence that the above factors are translating into meaningful positive estimate revisions.”
On the business side, they see Cava as a “rare category creator in restaurants,” similar to Chipotle Mexican Grill (NYSE:CMG) and Starbucks (NASDAQ:SBUX).
