Cava Group (NYSE:CAVA)’s growth potential has Bank of America analysts bullish on the fast-casual Mediterranean chain, with the broker initiating coverage on the company with a ‘Buy’ rating and a $112 price target.
Shares of Cava traded hands at about $86 on Monday.
Bank of America believes Cava has positioned itself as a “value compounder,” comparable to successful operators like Chipotle and Texas Roadhouse.
The firm argues that Cava’s recent stock pullback amid broader consumer spending concerns presents a compelling entry point, given the company's ability to sustain high returns on capital.
Expansion opportunities
They see significant potential for Cava to grow its unit volumes by attracting new customers and increasing spending among existing ones.
“We believe steak, which launched in mid-2024, mixes over 10% of sales, with innovation in sides (garlic pita chips) contributing further,” they wrote. “For existing customers, advertising and a revamped loyalty program should drive higher frequency and increased spend per visit.”
On the operational side, Cava has room to improve its margins, which currently lag behind Chipotle’s due to higher labor and occupancy costs.
The analysts highlighted that the company’s updated targets suggest improving restaurant-level margins, with expected efficiencies from increased sales volumes, process improvements, and technological enhancements in its “connected kitchen” model.
Cava is targeting 1,000 domestic stores but Bank of America believes the US could support more than twice as many at 2,200.
“We view even this number as conservative given that it's benchmarked against Cava's density in the DC area market which, while densest among Cava's existing market, is far less penetrated for Cava than it is for fast casual peer Chipotle,” they wrote.
“At Chipotle density, Cava’s top 20 markets alone could support more than 1,000 more stores (approximately 1,400 total).
“It only gets feta from here.”