Market reaction
CAVA Group Inc. (NYSE:CAVA) shares rose roughly 3% on Wednesday morning after Morgan Stanley moved the stock from equalweight to overweight and increased its price target to $90 from $86. The upgrade came after a period of recent weakness that left the shares closing Tuesday at $69.97, making the new target represent meaningful upside from prevailing levels.
Analyst rationale
Morgan Stanley analyst Brian Harbour described the rating change as a response to the stock's pullback following weaker-than-expected credit card trends. Harbour said the firm does not see issues with CAVA's long-term fundamentals, noting a persistently positive view of the company's outlook. "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," he commented.
Harbour underscored CAVA's standing among growth-oriented restaurant stocks, identifying it as one of the better performers within that coverage area. "On the growth side of our coverage, it stands out as one of few where we feel good about most of the KPIs that matter - traffic growth, unit growth, new store performance, and margin visibility," he added.
Valuation and modeling
On valuation, the analyst acknowledged that CAVA is not inexpensive even after the recent pullback, but assessed the valuation as defensible given the company's relative fundamental strength. "Valuation is defensible, because it remains one of the strongest fundamental stories in restaurants," Harbour said. Morgan Stanley's $90 target is derived from EV/EBITDA multiples and is corroborated by discounted cash flow analysis producing a comparable range.
Context and takeaway
The upgrade and raised price target highlight Morgan Stanley's view that near-term volatility driven by payment trends does not alter the longer-term growth trajectory and guidance expectations for CAVA. The firm's assessment places emphasis on operating KPIs - including traffic and unit expansion - and on margin visibility as the basis for a higher rating and target.