Stifel maintains Buy on CAVA Group stock, price target at $175

On Wednesday, Stifel analysts maintained a Buy rating on CAVA Group Inc (NYSE:CAVA) with a price target of $175.00, following the company’s reported fourth-quarter comparable sales growth of 21.2%. This figure surpassed both Stifel’s projection of 14% and the consensus estimate of 17.9%, propelled by a 15.6% increase in customer traffic and a 5.6% rise in average check size. The fast-casual restaurant chain, now valued at $11.4 billion, has demonstrated impressive revenue growth of 34% over the last twelve months. InvestingPro data shows six analysts have recently revised their earnings estimates upward, suggesting growing confidence in the company’s trajectory.

The analysts highlighted that CAVA’s robust performance can be attributed to several factors, including heightened brand recognition, continuous product innovation, productivity enhancements, and a successful loyalty program. For the fiscal year 2025, the company plans to persist with various initiatives such as an updated loyalty program, ongoing product innovation, strategic marketing campaigns, and the implementation of advanced technology, including a new labor model and an expanded kitchen display system (KDS). According to InvestingPro’s financial health assessment, CAVA maintains a strong position with a "GOOD" overall rating and a current ratio of 2.93x, indicating solid operational efficiency.

CAVA Group’s announcement of raising its new unit targets was also met with positive remarks from the analysts. The company has increased its year one and year two average unit volumes (AUVs) by $200,000 each, reaching $2.3 million and $2.5 million, respectively, and anticipates a cash-on-cash return exceeding 40%, an improvement from the previous expectation of 35%+. Although the return on marketing investment (ROM) for fiscal year 2025 is projected to be similar to that of fiscal year 2024, Stifel analysts believe that the strong returns on new units indicate that reinvesting the additional leverage into improving the crew and guest experience is a strategic move that should drive long-term growth for the company.

The analysts concluded their assessment by reiterating their Buy rating for CAVA Group, expressing confidence in the company’s growth trajectory and its ability to deliver value to shareholders through its strategic initiatives and strong operational performance. While the stock has seen a 17% decline over the past week, InvestingPro analysis indicates the company is currently trading above its Fair Value, with 18 additional exclusive insights available to subscribers through the comprehensive Pro Research Report.

In other recent news, CAVA Group Inc. reported a strong performance for the fourth quarter of 2024, surpassing earnings expectations. The company achieved an earnings per share of $0.05, significantly exceeding the forecasted loss of $0.01, and reported revenue of $225.1 million, which was higher than the anticipated $193.41 million. CAVA Group’s revenue grew by 36.8% year-over-year, and adjusted EBITDA increased by 60% for the quarter. Despite these positive results, Citi analysts adjusted their outlook, reducing the price target for CAVA Group stock to $120 from $140, while maintaining a Neutral rating.

The analysts noted that CAVA Group’s guidance for sales trends was optimistic, with plans to open 62 to 66 new restaurant outlets in the coming year. However, the forecast for FY25 EBITDA was set at $150-$157 million, falling short of Citi’s and the broader market’s expectations of $161 million and $162 million, respectively. The company also confirmed its forecast for mid-single to high-single digit comparable store sales growth and highlighted no significant shifts in consumer behavior. CAVA Group’s expansion strategy included introducing new menu items and technology enhancements, contributing to its growth trajectory. These developments come as the company aims to sustain its growth and enhance profitability in the competitive fast-casual dining sector.

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