CAVA Group is “not a cheap stock” even after its latest pullback, but it’s still a worthy addition to investors’ portfolios, according to Morgan Stanley. The investment bank upgraded the fast-casual restaurant chain to overweight from equal-weight and raised its 12-month price target on its shares to $90 from $86, implying 29% upside from Tuesday’s close. “Valuation is defensible, because it remains one of the strongest fundamental stories in restaurants,” analysts led by Brian Harbour said Wednesday in a 108-page review of the industry. “While this is not a cheap stock even after recent weakness, on the growth side of our coverage, it stands out as one of few where we feel good about most of the [key performance indicators] that matter – traffic growth, unit growth, new store performance and margin visibility.” Shares had fallen nearly 21% over the past three months as the chain’s same-store sales growth stagnated, raising concerns about a high valuation. CAVA 3M mountain Before rebounding Wednesday, CAVA was down about 21% over the past three months CAVA trades at more than 44 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EBITDA). But that valuation is justified given CAVA’s strong qualitative fundamentals, such as recent menu innovations and high customer loyalty, leaving the stock attractive, Morgan Stanley said. “We don’t have concerns about longer-term fundamentals and have long had a positive bias towards the story, 2Q should be on track and FY guidance on track,” Harbour wrote. The latest Morgan Stanley recommendation is in line with the Wall Street consensus, where 17 of 29 analysts rate it a buy or strong buy, with 11 calling it a hold, LSEG data shows.
CAVA is ‘not a cheap stock.’ Investors should buy it anyway, Morgan Stanley says
