Cava Group (CAVA) creates a model that offers compelling value to customers while translating its persistent topline growth into high and rising returns, similar to top-performing peers Chipotle Mexican Grill (CMG) and Texas Roadhouse (TXRH), making it an attractive long-term investment, BofA Securities said in a note Monday
Despite recent stock declines on consumer spending concerns, restaurant demand remains stable, creating a buying opportunity, the firm said.
Cava has room to increase customer traffic and spending through menu innovations such as steak and garlic pita chips, as well as advertising and an improved loyalty program, BofA noted.
While its restaurant-level margins lag Chipotle's due to higher labor and occupancy costs, these are expected to improve with sales growth.
The company aims to reach 1,000 US locations, but BofA's analysis suggests market capacity for about 2,200 stores. Even in its most developed market, Washington, D.C., Cava's footprint is far smaller than Chipotle's, indicating further expansion potential.
BofA began coverage of Cava's stock with a buy rating and a price target of $112.
Price: 85.26, Change: -0.59, Percent Change: -0.69
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