Reversing CAVA Group's 24% Crash: A Call for Fed Rate Cuts

CAVA Group's stock has crashed 24% after reporting earnings on Tuesday. The company operates a U.S.-based restaurant chain under the Cava brand, offering Mediterranean-inspired dishes. Despite the setback, investors should consider buying the stock due to potential Fed rate cuts, which could boost the company's performance.

CAVA Group's stock price took a significant hit, plummeting 24% following the company's earnings report on Tuesday. The U.S.-based restaurant chain, which operates under the Cava brand and specializes in Mediterranean-inspired dishes, faced a challenging quarter. The stock, which has experienced substantial volatility, currently trades at a P/E ratio of 68.6x [1].

The earnings report revealed softer same-store sales momentum, with the company citing the impact of new locations entering their second year in the comparable store base and the introduction of steak offerings in 2024. Despite these challenges, CAVA maintains strong financial health, with a current ratio of 3.0x and moderate debt levels [1].

Analysts have responded to the earnings with a mix of sentiment. UBS lowered its price target to $75.00 from $96.00, maintaining a Neutral rating. The firm noted that while new store performance remains strong, the negative drag on comparable sales from the "honeymoon effect" could extend into 2026 [1]. Baird, Jefferies, and KeyBanc have also adjusted their price targets, with Baird reducing its target to $95 from $115, Jefferies to $100 from $125, and KeyBanc to $85 from $100 [1]. In contrast, Stifel maintained its $125 price target and reiterated a Buy rating, viewing the recent share pullback as an opportunity despite acknowledging the lower-than-expected same-store sales growth [1].

Investors should consider the potential impact of Federal Reserve rate cuts, which could boost CAVA's performance. The company's projected new restaurant openings for 2025 have been revised upward to 68-70 from 64-68, and its revenue is expected to grow by 23% this year [1]. However, analysts are cautious about the current valuation and expectations, citing the need for further evidence of sustained growth in a challenging macro environment and better visibility into same-store sales trends before taking a more constructive view [1].

References:
[1] https://www.investing.com/news/analyst-ratings/cava-group-stock-price-target-cut-by-ubs-on-slowing-sales-growth-93CH-4187627