Be Choosy When It Comes To Restaurant Stocks, But Pick This Fast-Casual Chain: Analysts

Author: Aaron Bry | July 11, 2024 03:42pm

SPDR S&P 500 Index (NYSE:SPY) and Invesco QQQ Trust Series (NYSE:QQQ) sit near all-time highs. But restaurant stocks have struggled to keep up with the overall market.

Invesco's Food & Beverage ETF (NYSE:PBJ) is down around 2% year-to-date compared to the S&P 500's gain of nearly 18%.

Pick Of The Litter: But, in a recent analyst note, Wedbush highlights Cava Group Inc (NYSE:CAVA) as a restaurant stock to watch. It has an outperform rating and a 12-month price target of $100 a share. Wedbush's target represents an upside of around 18% from Cava's current levels of around $85 a share.

Read Also: Chipotle Mexican Grill’s Pricing Study Affirms Strong Value Proposition, Says Analyst

Quoted: "We view CAVA as one of a handful of publicly traded restaurants positioned to deliver positive annual transaction growth over the longer-term, with realistic long-term revenue and unit growth targets," Wedbush analysts Nick Setyan and Michael Symington wrote in the note.

The analysts pointed to the company's growth rate as attractive for investors. They argue that Cava's current EBITDA and margin expectations are "conservative." Cava went public in January 2023. Since then, its stock has increased more than 100% from its debut price of around $40 a share.

Cava, a Mediterranean chain with a similar model to Chipotle Mexican Grill (NYSE:CMG), has around 350 locations throughout the U.S. It’s considered a healthier option compared to other fast food chains. Founded in Maryland and headquartered in Washington D.C., Cava has a strong presence in the Northeast and East Coast regions.

Potential Risks: The analysts cited potential risks to their bullish thesis on Cava. Beware of unexpected fluctuations in input costs, as well as weaker sales in new markets where Cava expands.

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