By Savyata Mishra
(Reuters) -Restaurant chain Cava touched a fresh record high as its shares rose more than 16% at $167.50 in early trading on Wednesday, after it surpassed quarterly earnings estimates on strong demand for its pita chips and premium grilled steaks.
The company raised its annual forecasts for the third time in 2024 after market close on Tuesday and its stock has more than tripled in value this year.
Fast-casual restaurants like Cava, Shake Shack (NYSE:SHAK) and Chipotle (NYSE:CMG) Mexican, which offer salad bowls and cheeseburgers along with a casual dining space, have grown in popularity this year as customers traded up from fast-food chains amid runaway prices.
"Cava also continues to benefit from the consumer preference shift from quick service to fast casual as middle income consumers increasingly view fast casual as a better value for money," TD Cowen analyst Andrew Charles said in a note.
Cava witnessed 28.4% growth in traffic this year until September, while McDonald's (NYSE:MCD) and Restaurant Brands-owned Burger King saw customer visits decline 0.4% and 0.9%, respectively, according to data from Placer.ai.
At least six brokerages raised their price targets on the stock after the results, with Stifel increasing it the most, to $175 from $118.
"In our view, the stock's lofty valuation can be justified by its unit growth opportunity and the potential for solid operating momentum," Stifel analyst Chris O'Cull said.
Cava benefited from a revamped loyalty program launched in early October, contributing 200 basis points to sales in the reported quarter.
Its same-restaurant sales rose 18.1%, driven by a 12.9% increase from guest traffic and a 5.2% increase from menu prices and product mixes.
"CAVA is at a clear tipping point as the leader of fast-casual Mediterranean," CEO Brett Schulman said in a post-earnings call.
After expanding into Chicago, Cava plans to enter South Florida early next year and also expand its Midwest presence, with at least two additional new markets in 2025, Schulman said.
Cava's forward price-to-earnings ratio for the next 12 months, a common benchmark to value stocks, was 283.86, compared with 117.80 for Shake Shack and 46.69 for Chipotle.