On Thursday, Morgan Stanley adjusted its stance on CAVA Group Inc (NYSE:CAVA), downgrading the stock from Overweight to Equalweight, despite increasing the price target to $110 from $90. The decision followed the company's recent earnings report and was primarily based on the stock's significant year-to-date performance.
The firm cited that the 190% surge in CAVA's stock price this year led to the reassessment of its rating. While the analysts at Morgan Stanley continue to hold a positive view on the company's fundamentals and key performance indicators (KPIs), they believe the current valuation fully reflects the upside.
Morgan Stanley highlighted the company's strong financial growth, noting a more than 50% increase in the estimated EBITDA for 2025 compared to the previous year. This growth, according to the firm, has outpaced the general re-rating observed across the fast-casual restaurant sector.
The firm acknowledged CAVA's success in accelerating its growth, profitability, and cash flow. According to the analysts, the market now fully recognizes the likelihood of CAVA's broad national success, which is reflected in the stock's current price.
In summary, while Morgan Stanley remains optimistic about CAVA Group's performance and potential for upward estimate revisions in the next 12 months, the firm's downgrade to Equalweight is a strategic move based on valuation discipline and market expectations.
In other recent news, CAVA Group has reported a remarkable Q2 2024 performance, with an adjusted EBITDA of $34.3 million, a significant increase from the previous year. The company also announced a 35% year-over-year increase in consolidated revenues, reaching $231 million. This robust performance led Loop Capital, TD Cowen, and JPMorgan to raise their stock price targets for CAVA Group, while maintaining their current ratings.
Furthermore, the company reported a 14.4% rise in same-restaurant sales, driven by a 9.5% increase in customer traffic and a 4.9% increase in ticket size. CAVA Group's strong performance is attributed to strategic initiatives such as the introduction of steak to their menu and the planned launch of a revamped loyalty program.
Despite these positive developments, analysts from JPMorgan and Citi maintain a neutral stance on the stock. The company, however, continues its growth trajectory with plans to open 54 to 57 new restaurants by the end of 2024 and expects same-restaurant sales growth to be between 8.5% and 9.5%. These recent developments reflect the ongoing growth and profitability of CAVA Group.
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