{"id":33864,"date":"2023-07-10T19:50:35","date_gmt":"2023-07-10T23:50:35","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/cava-groups-stock-soars-as-analysts-remain-bullish-after-near-doubling-in-price-since-ipo\/"},"modified":"2023-07-10T19:50:36","modified_gmt":"2023-07-10T23:50:36","slug":"cava-groups-stock-soars-as-analysts-remain-bullish-after-near-doubling-in-price-since-ipo","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=33864","title":{"rendered":"Cava Group\u2019s stock soars as analysts remain bullish after near-doubling in price since IPO"},"content":{"rendered":"

The stock of Mediterranean-style fast-casual restaurant chain Cava Group Inc. soared 11% Monday, after analysts initiated coverage on the stock which made its debut on public markets in mid-June with a flurry of buy ratings.<\/p>\n

At least four of the banks that were underwriters on the initial public offering \u2014 JP Morgan, Stifel, William Blair and Jefferies \u2014 assigned the stock a buy rating or the equivalent.<\/p>\n

\n

Morgan Stanley took a slightly more subdued approach with an equal weight rating. FactSet shows a total of six buy ratings and a sole hold rating but it\u2019s a restricted listing so it\u2019s not clear who it\u2019s from.<\/p>\n

The company
\n CAVA,
\n +11.06%<\/bg-quote>
\n raised $317 million in its initial public offering, which priced above its proposed range at $22 a share and immediately rallied on opening. The company issued 14.4 million shares at a valuation of $2.45 billion. The stock was last trading at $43.83.<\/p>\n

See also:<\/strong> Like choosy shoppers at a retail store, IPO investors are demanding discounts and displaying price sensitivity<\/p>\n

The company is not profitable and has high cash burn and just $23 million in cash and cash equivalents on its balance sheet, according to its IPO filing documents.<\/p>\n

But analysts were unfazed, with William Blair analysts calling it a clear leader in a fast-growing category with proven geographic appeal.<\/p>\n

\u201cCAVA\u00a0has hit upon a winning formula with its customizable menu of bowls and pitas featuring bold Mediterranean flavors that can fit in any dietary preference,\u201d wrote analysts led by Sharon Zackfia.<\/p>\n

\u201cCAVA\u2019s customer appeal is evident in average unit volumes (AUVs) of roughly $2.5 million and a 44% five-year revenue CAGR through 2022.\u201d<\/p>\n

The company accelerated its growth with the 2018 acquisition of Zo\u00ebs Kitchen, \u201cwhich provided immediate access to attractive real estate in new markets while enabling capital-efficient densification in top-tier trade areas (Zo\u00ebs conversions roughly half the cost of a typical greenfield\u00a0CAVA),\u201d they wrote. <\/p>\n

That has set the company up to end 2023 with roughly triple the number of locations as it had in 2020.<\/p>\n

William Blair estimates that there\u2019s room for at least 1,200 domestic Cava restaurants based on the population per restaurant already achieved in Virginia, where it\u2019s still adding locations. <\/p>\n

That supports management\u2019s target of 1,000-plus locations by 2032.<\/p>\n

\u201cWe also see the potential for digital drive-thrus to further lengthen\u00a0CAVA\u2019s growth runway while lifting AUVs (and potentially returns), with about one-third of this year\u2019s new units having drive-thrus, ramping up to about half in 2024 (versus roughly 20 drive-thrus today),\u201d they wrote. William Blair initiated coverage with an outperform rating.<\/p>\n

JP Morgan launched coverage with an overweight rating and a December 2024 $45 stock price target. Analysts cheered the entrepreneurial sprit of Founder and CEO Brett Schulman with help from Chairman Ron Shaich, the founder of Panera Bread.<\/p>\n

\u201cIn-store design\/operational procedures and back-end support for the network allows CAVA to be efficient, safe and consistent as the brand leverages these systems for its goal national brand penetrati<\/strong>on,\u201d they wrote in a note to clients. <\/p>\n

Mediterranean cuisine covers many types of food and occasions, so the end-market is large, topping out at more than $1 trillion in U.S. sales.<\/p>\n

While bowl builds priced at $10.95 to $16.95 will likely limit a high frequency of lower-income consumers, \u201cwe believe the brand has an enduring appeal to a very broad customer base for at least occasional usage.\u201d <\/p>\n

And suburbs are 82% of the site mix and are expected to remain a key location base, they added. <\/p>\n

Stifel and Jefferies analysts initiated coverage with a buy rating and $48 price target. Stifel analysts led by Chris O\u2019Cull also cheered the wide appeal of the food and compelling unit-level returns and highlighted the company\u2019s healthy balance sheet.<\/p>\n

\u201cThe company is in strong financial condition with no funded debt and roughly $340M in cash on hand following the company\u2019s IPO,\u201d they wrote in a note to clients. \u201cWe project the company\u2019s average quarterly cash balance will remain above $200M with no funded debt for the foreseeable future. We project positive annual free cash flow starting in 2026.\u201d<\/p>\n

Even Morgan Stanley was upbeat on the stock, albeit it\u2019s taking a longer-term, wait-and-see approach before committing to a bull case. The bank assigned the stock a $43 stock price target.<\/p>\n

\u201cWe\u2019ve attempted to look at valuation carefully, based on both near-term numbers and more distant expectations for the company\u2019s expansion, which leaves us with less upside to our price target, even generally buying into the next decade\u2019s bright expansion plan, and this drives our EW rating,\u201d analysts led by Brian Harbour wrote in a note.<\/p>\n

\u201cExperience would suggest there will be other entry points, and the next few years should provide critical proof points as CAVA enters the 350- to 500-store range, in our view, which may enable us to underwrite a bull case with higher AUVs, margins, and TAM,\u201d they wrote. TAM stands for total addressable market. <\/p>\n

Still, not everyone is convinced the company is a buy. David Trainer, chief executive of\u00a0New Constructs,\u00a0an independent equity research firm that uses machine learning and natural-language processing to parse corporate filings and model economic earnings, published a series of critical reports before the IPO.<\/p>\n

Trainer questioned Cava\u2019s ability to reach profitability and its high valuation. He even compared it to WeWork\u00a0
\n WE,
\n +3.02%<\/bg-quote>,<\/span>
\n \u00a0the infamous startup created by Israeli entrepreneur Adam Neumann, that at its peak was valued at $47 billion, but is now\u00a0trading at just 26 cents a share, or a market cap of $521 million.<\/p>\n

The Renaissance IPO ETF\u00a0
\n IPO,
\n +1.56%<\/bg-quote>
\n \u00a0has gained 32% in the year to date, while the S&P 500\u00a0
\n SPX,
\n +0.24%<\/bg-quote>
\n has gained 15%.<\/p>\n

For more, see:<\/strong>\u00a0Fast-casual restaurant chain Cava Group\u2019s IPO documents raise some red flags: analyst<\/p>\n

Read now: <\/strong>Cava Group CFO is confident restaurant chain will be profitable\u2014but she won\u2019t say when<\/p>\n

Related: <\/strong>5 things to know about the fast-casual Mediterranean restaurant chain Cava <\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The stock of Mediterranean-style fast-casual restaurant chain Cava Group Inc. soared 11% Monday, after analysts initiated coverage on the stock which made its debut on public markets in mid-June with a flurry of buy ratings. 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