Analysts cheer Cava after a successful rollout of grilled-steak option

By James Rogers

Restaurant chain Cava reported second-quarter earnings that more than doubled

The success of Cava Group Inc.'s new grilled-steak offering has prompted analysts to raise their price targets for the fast-casual Mediterranean restaurant chain.

Cava shares (CAVA) are up 16.8% Friday, lifted by the company's second-quarter results and raised guidance. The restaurant chain, which went public last year, posted quarterly earnings that more than doubled.

"Sales benefited from stronger-than-expected uptake of the new Grilled Steak offering, growing brand awareness, and the appeal of CAVA's unique value proposition that continues to resonate with consumers across income levels and geographies," Stifel analyst Chris O'Cull wrote in a note released Friday.

Related: Cava's successful steak launch beefs up restaurant chain's earnings

"We were pleased with the strength of the comp and new unit performance, with the latter outpacing the company's underwriting targets," O'Cull wrote. "We believe that confirmation of new unit performance is a critical factor for the stock, as unit growth will build brand awareness and, in turn, comp sales."

Citing the successful launch of the grilled-steak option and the benefit of additional initiatives coming later this year, Stifel raised its 2024 and 2025 estimates for earnings before interest, tax, depreciation and amortization to $112 million and $143 million, respectively, and lifted its price target to $118 from $110. Stifel has a buy rating for Cava.

In a statement released Thursday, Cava Chief Executive Brett Schulman said that the new steak option is "significantly outperforming our expectations."

Related: Cava Group's stock rallies anew as analysts remain bullish after near-doubling in price since IPO

"Management noted a stronger than expected response to its steak launch on 6/3 which drove strong comp acceleration through the quarter," Raymond James analyst Brian Vaccaro wrote in a note released Friday. "We expect strong comps over the next several quarters powered by [the second-quarter] steak launch and the launch of a new loyalty program in October 2024."

Raymond James raised its 2024 Ebitda estimate for Cava to $119 million from $105 million and reiterated its market-perform rating, citing the company's "impressive" second-quarter results.

Wedbush also raised its Cava price target Friday, going to $120 from $100. "We view CAVA as one of a handful of publicly traded restaurants positioned to deliver positive annual transaction growth over the longer term, with realistic long-term revenue and unit growth targets," Wedbush analyst Nick Setyan said in a note. "The 6/3 launch of steak surpassed internal expectations, with sales since the national rollout exceeding those observed during market testing."

Related: Like choosy shoppers at a retail store, IPO investors are demanding discounts and displaying price sensitivity

Setyan cited Cava's maturation cycle of new units, attractivevalue proposition, growth in advertising, increased brand awareness, menu innovations like steak, growth in digital, new loyalty program and throughput-focused operational initiatives as drivers of same-store sales growth. Wedbush has an outperform rating for Cava.

"Sales momentum was broad-based," William Blair analyst Sharon Zackfia wrote in a note Friday, citing healthy trends across vintages (the different years when the restaurants opened), geographies, formats and household-income cohorts. "The June 3 systemwide rollout of steak generated stronger-than-expected sales," she added. William Blair has an outperform rating for Cava.

Of 16 analysts surveyed by FactSet, eight have an overweight or buy rating, seven have a hold rating and one has an underweight rating for Cava.

Related: Cava's recipe for success? Acquiring other chains to expand.

Cava shares are up 177.7% in 2024, outpacing the S&P 500's SPX gain of 17.6%.

-James Rogers

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08-23-24 1123ET

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