News

For Immediate Release

Chicago, IL – July 11, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: CAVA Group, Inc. CAVA, Darden Restaurants, Inc. DRI, Restaurant Brands International Inc. QSR and Brinker International, Inc. EAT.

Here are highlights from Wednesday’s Analyst Blog:

CAVA Rises +110% in 6 Months: Too Late to Buy In?

CAVA Group, Inc. has seen a significant increase in its stock price, which soared 110.2% over the last six months. This impressive performance comes in contrast to a 5.5% decline in the industry. The company's success can be attributed to its attractive, health-focused and highly customizable menu. As a result, CAVA has outpaced the broader Retail Wholesale sector, which rose 1.1%, and the S&P 500, which gained 8.6%, in the said time frame.

The recent surge in CAVA stock has left many investors contemplating whether they've missed a prime investment opportunity or if there's still room for growth. On Jul 9, the stock closed at $90.24, which is below its 52-week high of $98.69 but significantly higher than its 52-week low of $29.05. The company also outperformed other industry players like Darden Restaurants, Inc., down 12.3%, Restaurant Brands International Inc., down 12.9%, and Brinker International, Inc., up 68.1%, in the past six months.

Technical indicators suggest continued strong performance for CAVA. The stock is trading above its 50-day moving average, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in CAVA's financial health and prospects.

Factors Acting in Favor of CAVA

CAVA's growth is supported by strategic initiatives such as the nationwide introduction of a premium-priced steak and a revamped loyalty program aimed at boosting customer frequency and revenues. Menu price increases, robust digitalization, a favorable product mix and new restaurant openings continue to drive growth.

Moreover, a new labor deployment model enhancing service speed and customer experience, and a multiyear Connected Kitchen initiative utilizing AI for supply chain forecasting and food prep automation also bode well. These efforts are poised to drive sales and margin growth.

CAVA's strategy for delivering value and ensuring long-term success is centered on four key pillars. First, the company aims to bring its Mediterranean cuisine to more communities nationwide. Second, even as CAVA grows, it is focusing on fostering personal connections with its guests. Third, the company is committed to maintaining high standards of restaurant operations, ensuring excellence at every location and during every shift. Last, CAVA emphasizes the importance of operating as a cohesive, high-performing team.

CAVA is actively expanding its footprint, having added 15 new locations in the first quarter of 2024 across six states, bringing its total to 323 locations, a 23% increase. The company opened five more units in the second quarter, including its first Chicago location, which has seen impressive sales volume. Due to the strong performance of the new units, CAVA has raised its 2024 development guidance. It plans to open 50 to 54 new locations, which will translate to a growth rate of 16% to 18%. A significant aspect of CAVA's expansion strategy includes the integration of digital drive-thru pickup lanes.

2024 Outlook Boosts Confidence

The company now anticipates same restaurant sales in the range of 4.5-6.5%, up from the prior estimate of 3% to 5%. CAVA’s restaurant-level profit margin is expected between 23.7% and 24.3%, up from the earlier estimate of 22.7% to 23.3%. Adjusted EBITDA is expected in the range of $100 million to $105 million, up from the prior estimate of $86 million to $92 million.

CAVA Trading at a Premium

The company is currently valued at a premium compared to its industry on a forward 12-month price-to-sales (P/S) basis. CAVA’s forward 12-month P/S ratio stands at 10.3, significantly higher than the industry’s ratio of 3.53 and the S&P 500's ratio of 5.28. This suggests that investors may be paying a high price relative to the company's expected earnings growth.

Estimate Revision Favoring the Stock

Reflecting the positive sentiment around CAVA, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their estimates for both the current and the next fiscal year by 36% to 34 cents and by 39.4% to 46 cents per share, respectively. These estimates indicate expected year-over-year growth rates of 61.9% and 33.2%, respectively.

Conclusion

This Zacks Rank #1 (Strong Buy) company has demonstrated remarkable stock performance, driven by its appealing menu, strategic initiatives and effective expansion efforts. The company’s robust growth, enhanced by technological advancements and a focus on customer experience, has led to increased investor confidence.

Despite trading at a premium, positive earnings revisions and strong fundamentals suggest potential for continued growth. As CAVA continues to expand and innovate, it appears well-positioned for sustained success in the competitive market. Investors can consider betting on the stock as it still appears to have more room to run.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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