(Bloomberg) — Cava Group Inc.’s stock has surged since it began life as a public company last month, and analysts generally agree that further gains are on the way, some comparing the fast food chain to another investor favorite: Chipotle Mexican Grill Inc.
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Shares rose 11% in New York on Monday as the expiration of the usual period of calm prompted a flurry of Wall Street initiations, with most investors recommending buying Cava shares. All analysts tracked by Bloomberg have set a price target higher at Friday’s close of $39.62, with Baird the highest at $50.
The group drew comparisons with Chipotle, which has gained 51% this year, hitting a record high on June 30. Given the many similarities, Morgan Stanley analysts led by Brian Harbor called Chipotle the “obvious analogue” of Cava.
Chipotle is “the most successful fast-casual brand to date and provides a model of what the bull business might look like for Cava over the coming decades,” the analysts wrote in a note. However, they launched Cava at equal weight, seeing the short-term fundamentals and upside potential as already baked into the title. Cava shares ended Monday’s session at $44, above analysts’ price target of $43.
In June, Cava almost doubled on its commercial debut, jumping 99% from the IPO price to give the company a market value of $4.9 billion.
“Experience suggests there will be other entry points” for investors, Morgan Stanley analysts said. As Cava reaches the 350-500 store range, more “critical evidence points” will be provided which they believe will help establish a bullish case with higher forecasts for accumulated unit value, margins and the total addressable market. The group currently has more than 250 outlets, according to data from its website.
“Even for Chipotle, Cava’s bullish case mix, there were bumps along the way that created entry points for long-term investors,” the analysts said.
More broadly, analysts are positive about the channel’s potential for expansion specializing in Mediterranean cuisine. While Washington, D.C.-based Cava sees potential for more than 1,000 restaurants over the next decade, analysts predict there could still be more, with Jefferies seeing a ‘blue sky’ scenario close to that of the 7,000 Chipotle units in North America.
“Overall, we believe Cava is a unique concept and investment opportunity, and we can envision a scenario where the stock may rise from here as the year progresses,” Brian wrote. Mullan and Aisling Grueninger of Piper Sandler in a note, rating the stock overweight.
–With help from Aashna Shah and Katrina Lewis.
(Updates for market close throughout.)
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