On Wednesday, Barclays (LON:BARC) reaffirmed its Equalweight rating on CAVA Group Inc (NYSE:CAVA) and increased the stock's price target from $113.00 to $142.00. The adjustment follows CAVA's consistent performance, surpassing expectations with its third-quarter results, which continued the trend set in the first half of 2024.
The analyst from Barclays highlighted CAVA as a leading fast-casual restaurant concept, noting its long-term revenue growth prospects in the high teens. This optimism is underpinned by over 15% growth in new units and low-to-mid single-digit comparable store sales growth, which have both been conservative estimates compared to actual results. The company's EBITDA is expected to grow in the mid-to-high 20% range.
CAVA's third-quarter performance demonstrated continued strength, outperforming both sell-side consensus and, to a lesser extent, buy-side expectations. The company does not seem to be impacted by a more discerning consumer base, which is a positive sign in a market where other fast-casual peers are experiencing a re-acceleration in comparable store sales.
Management at CAVA noted that the brand is resonating across various customer segments, including all age groups, demographics, and income levels. Barclays believes that CAVA deserves a premium valuation compared to its peers, such as BROS, CMG, and SHAK, due to its exceptional comparable store and unit growth, which support a faster EBITDA growth trajectory.
While the analyst maintains a value bias and acknowledges the potential risks associated with the fast-casual segment in a slowing macroeconomic environment, CAVA is viewed as well-positioned to outperform its peers.
The valuation of CAVA stands at approximately 115 times the estimated 2025 EBITDA, compared to its peers, which are valued at around 31 times. The new price target of $142 reflects Barclays' confidence in CAVA's growth attributes and market position.
In other recent news, CAVA Group Inc. reported a robust third-quarter performance, significantly surpassing analyst expectations. The company's adjusted earnings per share reached $0.15, while revenue hit $241.5 million, marking a 39% increase from the same period last year.
This impressive performance was propelled by an 18.1% growth in same-restaurant sales and the opening of 11 new restaurants, bringing the total count to 352. The company's digital revenue mix stood at 35.8% for the quarter, emphasizing the growing significance of its online ordering channels.
CAVA Group's restaurant-level profit margin also expanded to 25.6%, despite increased labor costs and expenses associated with launching a new grilled steak offering. Encouraged by these results, the company raised its full-year 2024 guidance, now expecting same-restaurant sales growth of 12% to 13%.
In addition to these financial results, Citi maintained a Neutral rating on the company but increased the price target from $140.00 to $163.00. This adjustment follows CAVA Group's recent financial performance, which Citi described as a "beat and raise," highlighting the company's continued success and growth prospects.
Citi's analysis suggests that CAVA's comprehensive approach to market expansion and financial management is likely to sustain its stock value.
InvestingPro Insights
CAVA Group Inc's impressive performance, as highlighted in the Barclays analysis, is further supported by real-time data from InvestingPro. The company's revenue growth of 31.01% over the last twelve months aligns with the analyst's projection of high-teens long-term revenue growth. Additionally, CAVA's quarterly revenue growth of 35.05% in Q2 2024 underscores its strong market position and resonance with consumers across various demographics.
InvestingPro Tips reveal that CAVA is trading near its 52-week high, with a remarkable 362.47% price total return over the past year. This performance reflects the market's confidence in CAVA's growth trajectory and supports Barclays' decision to raise the price target. The company's ability to operate with a moderate level of debt, as noted in another InvestingPro Tip, provides financial flexibility to support its ambitious expansion plans.
For investors seeking a deeper understanding of CAVA's potential, InvestingPro offers 16 additional tips, providing a comprehensive view of the company's financial health and market position. These insights can be particularly valuable given CAVA's high valuation multiples and rapid growth in the competitive fast-casual restaurant sector.
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