Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- Bank of America has initiated coverage on Cava Group Inc. with a Buy rating and a price objective of $112, calling the Mediterranean fast-casual restaurant chain a "value compounder" with strong growth potential.
“Restaurants that deploy capital at high rates of return for long periods of time can sustain their premium multiples and reward investors,” BofA wrote.
Analysts see Cava as a compelling opportunity, especially after recent stock weakness linked to consumer health concerns, despite "evidence of generally stable restaurant demand."
BofA believes Cava has room to increase customer volume and expand margins.
“On the demand side, we see room to increase the number of customers and frequency/spending among existing customers,” the firm noted.
Cava’s margins also have room for expansion, particularly when compared to Chipotle (NYSE:CMG), a key industry peer, according to the bank.
“CAVA’s updated targets for year-2 restaurant level margin—22% vs 20% prior—and year-2 average volume—$2.5mm vs $2.3mm prior—imply ~20bps margin expansion per point of SSSG,” BofA wrote.
Looking ahead, BofA sees a long runway for expansion, noting that "CAVA’s top 20 markets alone could support more than 1000 more stores."
While the company has laid out a target of 1,000 U.S. locations, BofA’s analysis suggests the market could support more than twice as many.
With strong growth potential, margin expansion, and a scalable business model, Cava remains a top pick for BofA.