On Wednesday, Bernstein SocGen initiated coverage on CAVA Group Inc (NYSE:CAVA) stock with a Market Perform rating and a price target set at $145.00. The firm's analysis highlighted CAVA's impressive growth in same-store sales (SSS), which increased by 25% over the past three years.
In addition, CAVA has successfully doubled its number of stores and has expanded its geographic footprint, demonstrating the concept's adaptability.
Despite the positive growth indicators, the analysis suggests that the current stock price already reflects a high level of expected perfection. A 20-year discounted cash flow (DCF) model was applied, incorporating optimistic expectations of approximately 15% or more in revenue growth and around 23% in free cash flow (FCF).
However, the results from this valuation method indicate that there is limited potential for significant stock price increases based on today's market value.
The firm's stance on CAVA is that for investors to achieve healthy returns from the current valuation, they would have to bank on the company's ability to outpace the long-term growth rates of the top performers in the restaurant industry.
The analyst notes that while CAVA's market multiple may fluctuate, they recommend waiting for a market correction that could present a more favorable risk/reward scenario for potential investors.
In summary, Bernstein SocGen acknowledges CAVA Group's strong performance and potential in the restaurant industry but advises caution due to the stock's full pricing and limited upside at its current market value. The firm suggests that a more attractive investment opportunity may arise if the stock's valuation adjusts in the future.
In other recent news, CAVA Group has seen a surge in positive analyst attention following robust financial results. The company's third-quarter results surpassed expectations, reporting an 18.1% increase in same-store sales and a 39% surge in revenue to $241.5 million. The adjusted EBITDA for the quarter was also impressive at $33.5 million.
William Blair expressed optimism about CAVA's growth, citing strong momentum and exceptional performance. The firm anticipates CAVA's adjusted EBITDA to outperform initial guidance by nearly 40% for 2024 and estimates for 2025 and 2026 have been adjusted to 80-90% above initial expectations.
Several analyst firms have adjusted their outlook on CAVA Group. Piper Sandler raised its price target to $142, maintaining a Neutral rating. Loop Capital increased its target to $147, maintaining a Hold rating. Morgan Stanley (NYSE:MS) raised its target to $135, keeping an Equalweight rating. CFRA upgraded their rating from Hold to Buy, with a new price target of $200. TD Cowen also adjusted its price target for CAVA Group, raising it to $150 and maintaining a Buy rating.
These recent developments highlight the strong performance and positive outlook for CAVA Group. The company's management has provided guidance for the upcoming year, anticipating a minimum net unit growth of 17% for 2025 and expecting restaurant-level margins to remain in line with the levels projected for 2024.
InvestingPro Insights
CAVA Group's impressive growth trajectory, as highlighted by Bernstein SocGen, is further supported by recent InvestingPro data. The company's revenue growth stands at a robust 34.05% over the last twelve months, with quarterly revenue growth reaching 38.89% in Q3 2024. This aligns with the firm's observation of CAVA's strong same-store sales growth and expansion.
InvestingPro Tips indicate that analysts anticipate continued sales growth for CAVA in the current year, with six analysts revising their earnings upwards for the upcoming period. This optimism is reflected in the stock's performance, with a remarkable 316.91% price total return over the past year.
However, the valuation concerns raised by Bernstein SocGen are echoed in InvestingPro data. CAVA is trading at high multiples across various metrics, including a P/E ratio of 297.29 and a Price/Book ratio of 26.25. These figures support the analyst's view that the stock price may already factor in high growth expectations.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for CAVA, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.