On Wednesday, CFRA raised its rating on CAVA Group Inc (NYSE:CAVA) from Hold to Buy, significantly increasing the price target to $200 from the previous $125. The adjustment follows CAVA's impressive third-quarter performance, where revenues reached $244 million, marking a 38.9% year-over-year increase and surpassing consensus estimates by $10 million. The company's adjusted EBITDA also exceeded expectations by $4 million, coming in at $33.5 million.
CAVA's positive results were attributed to a combination of factors, including a robust 18.1% growth in same-store sales, prompting the company to revise its 2024 same-store sales growth forecast to 12%-13% from the initially projected 8.5%-9.5%. Additionally, the adjusted EBITDA outlook for 2024 has been lifted to between $121 million and $126 million, up from the previous range of $109 million to $114 million.
The upgrade in the stock's rating is backed by CAVA's strong top-line growth, which was driven by a 12.9% increase in guest traffic and a 5.2% rise due to menu price and product mix. The bottom-line benefit stemmed from sales leverage. The analyst from CFRA highlighted CAVA's comparable demand and restaurant-level margins to industry peer Chipotle (NYSE:CMG), with the potential for substantial new unit growth.
The raised earnings per share (EPS) forecasts for the coming years also reflect growing confidence in CAVA's business model. The analyst's revised EPS estimates are now $0.53 for 2024, up from $0.33, and $0.75 for 2025, increased from $0.51, with an initiation of $0.85 for 2026. The new price target is based on a blended valuation approach, combining 110 times the 2026 EV/EBITDA and 14 times the 2026 EV/sales.
The CFRA analyst concluded that CAVA's unit economics, whitespace opportunity, and strong demand momentum heading into 2025 justify the premium valuation and support the Buy opinion.
In other recent news, CAVA Group Inc. reported a significant increase in third-quarter earnings, with revenue surging by 39% to $241.5 million. This robust growth was accompanied by an 18.1% rise in same-restaurant sales and a 12.9% uptick in guest traffic. In addition to its financial performance, the company also continued its expansion strategy, opening 11 new restaurants and launching a well-received loyalty program and flavor innovation.
TD Cowen, an investment firm, has raised its price target for CAVA Group to $150, maintaining a Buy rating on the stock. This adjustment comes in the wake of the company's strong third-quarter performance and an increased guidance for 2024. The firm's analysts anticipate CAVA Group to perform at the higher end of the updated same-store sales guidance for 2024 and predict the company's growth in 2025 to exceed previously established expectations.
InvestingPro Insights
CAVA Group's impressive performance highlighted in the article is further supported by real-time data from InvestingPro. The company's revenue growth of 31.01% over the last twelve months as of Q2 2024 aligns with the strong top-line growth mentioned in the article. This growth trajectory is expected to continue, as one InvestingPro Tip suggests that analysts anticipate sales growth in the current year.
The company's market capitalization stands at $16.58 billion, reflecting investor confidence in CAVA's potential. This valuation is supported by the company's strong financial performance, with a gross profit of $316.78 million and an EBITDA of $87.81 million over the last twelve months as of Q2 2024. The EBITDA growth of 117.31% during this period is particularly noteworthy and aligns with the company's revised outlook for adjusted EBITDA mentioned in the article.
InvestingPro Tips also indicate that CAVA is trading at high valuation multiples, including high earnings, EBIT, EBITDA, and revenue multiples. This premium valuation is consistent with the CFRA analyst's view that CAVA's strong demand momentum and growth potential justify its valuation.
For investors seeking more comprehensive insights, InvestingPro offers 15 additional tips for CAVA Group, providing a deeper understanding of the company's financial health and market position.
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