Morgan Stanley says CAVA Group is “not a cheap stock” even after its recent selloff, but remains a worthy addition to investors’ portfolios. The investment bank upgraded the fast-casual restaurant chain from equal weight to overweight and raised its 12-month price target for the company’s stock to $90 from $86, implying a 29% upside from Tuesday’s closing price. “Valuation remains defensible as it remains one of the strongest fundamental stories in the restaurant industry,” analysts led by Brian Haber said in a 108-page industry review Wednesday. “The stock is not a cheap stock, even after the recent downturn, but on the growth side of our coverage, it stands out as one of the few stocks that we feel good about on most of the key (key performance metrics), including traffic growth, unit growth, new store performance, and margin visibility.” The stock has fallen nearly 21% over the past three months as the chain’s same-store sales growth has stagnated, raising concerns about its high valuation. CAVA 3M Mountain Until Wednesday’s rebound, 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). However, Morgan Stanley said this valuation is justified given CAVA’s strong qualitative fundamentals, including recent menu innovations and strong customer loyalty, making the stock attractive. “We are not concerned about long-term fundamentals and have long had a positive bias towards this story. The second quarter should be on track and the outlook for the fiscal year should be on track,” Haber said. Morgan Stanley’s latest recommendation is in line with Wall Street consensus, with 17 of 29 analysts rating it a “buy” or “strong buy,” and 11 rating it a “hold,” according to LSEG data.
