Sep 15, 2023

Inna Tarasenko/iStock via Getty Images Loop Capital loves Cava Group (NYSE: CAVA ) but not so much the multiple. The firm initiated coverage on the stock with a Hold rating and a price target of $40. Shares are currently down about 4% to approximately $34.60 on Friday. “We are confident Cava Group can reach its targeted domestic unit count of 1,000+ units by 2032, which would imply an over 4x increase from 237 locations at the end of 2022 and a 15%+ CAGR over the next decade,” analyst Alton Stump wrote in a note. However, CAVA is trading at 60x the firm’s 2024 EV/EBITDA estimate, well above the 15-16x FTM EV/EBITDA five-year average for the publicly traded restaurant group. “We believe CAVA deserves to trade at a substantial premium to its peer group average given the company is in the early stages of its unit growth story, has an impressive same-store sales growth profile and possesses a unique Mediterranean-style fast-casual concept. However, we believe these positive attributes are reflected in the company’s current valuation.” Nice work, Cava The firm notes that 15% to 20% of total restaurant locations were forced to close permanently since the start of the pandemic, representing a substantial opportunity for larger multi-regional and national chains such as CAVA to gain share. Furthermore, the labor market has eased significantly in 2023 and is expected to continue to do so over the next 12 to 18 months, which should help enable CAVA’s openings to accelerate. CAVA went public this year, among the first after a drought of IPOs. This week, Arm Holdings ( ARM ), the British chip designer, went public, with shares jumping almost 25% in its market debut on Thursday. Grocery delivery app Instacart ( CART ) on Friday boosted the range for its IPO to $28 to $30 and now may raise as much as $660 million in the offering following the success of ARM’s transaction. The grocery delivery and pickup raised the expected range from $26 to $28. In June, when CAVA opened for trading, shares jumped from an IPO price of $22 to $42. The stock rose to as high as $58.10 in July. Loop noted that the Mediterranean chain’s sales were hit like all others at the start of the Covid-19 pandemic, and have recovered, up 45% in 2021 and 14% in 2022. During the first half of 2023, CAVA’s same-store sales reaccelerated to growth of 28% in 1Q23 and 18% in 2Q23. CAVA has four Strong Buy ratings from Wall Street analysts, two Buys and two Holds.