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CAVA went public in June of this year with an initial offering price of $22. The stock peaked at $57 in July but has pulled back since then, and shares currently trade at $32.
Morgan Stanley analysts noted a small early lockup expiration in September, and presumably some IPO holders were selling. They also noted that high multiple and rate-sensitive stocks have been hit, and while CAVA is subject to this, the worst could be behind it.
Morgan Stanley also noted that CAVA checks some boxes as a short idea for investors worried about the consumer — company operated, higher price point, high multiple — but analysts think this pressure will ease.
“We’d point to others in our coverage with less fundamental momentum and a cloudier outlook though, if this is really the concern. CAVA’s healthier food, more workday-driven traffic, and favorable demographics should be a relative advantage,” the analysts said.
Discussing the upgrade and the stock’s valuation, the analysts said, “We’re shifting our relative preference to CAVA where we have somewhat more confidence in the catalyst path and near term estimates, as well as the long term fundamental growth story …Valuation on near term numbers is still not immodest, likely a point of pushback (EV/store profit about aligned with CMG though), but we are sticking with the framework laid out in our recent initiation, adjusting for discount rates, which still leaves us with ~30% upside.”
CAVA Group climbed 3.7% shortly after the upgrade was published.
