WEEK OF JULY 17, 2023
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Important Prices
What’s Moving The Markets?
Google's AI chatbot To Expand to Europe & Brazil
Alphabet claimed that it is rolling out its AI chatbot, Bard, in Europe and Brazil on Thursday, the product’s biggest expansion since its February launch, putting it against Microsoft backed rival ChatGPT.
US Inflation Lower Than Expected
The Bureau of Labor Statistics has released the CPI data for the month of June showing that inflation in the country has declined to 3%, a steady decrease from the previous month’s rate of 4% and 4.9% in April.
Microsoft Wins Approval To Acquire Activision
Following Federal Trade Commission action to halt the acquisition, Microsoft has won US court approval to acquire popular video game developer Activision Blizzard.
SEC Acknowledges Bitcoin ETF Applications
The SEC has acknowledged Fidelity, BlackRock, and other Spot Bitcoin ETF applications. Although this doesn’t indicate approval or rejection, it does signify an important step in the application process.
US Judge Rules Ripple Is Not A Security
After an ongoing lawsuit that was years in the making, a US judge has officially ruled that Ripple’s XRP is not a security, a major win for Ripple, with the sale of XRP not legally constituting an offer of investment contracts.
Europe’s First Bitcoin ETF
After a 12-month delay, Europe’s first Bitcoin ETF on Euronext Amsterdam under the ticker BCOIN is expected to finally go live this month.
S&P Outlook
Bull Case:Price continued trading above 4493 pivot and now just below Major daily supply that sits at 4570.25. For pullbacks, bulls will ideally want to continue to hold 4490-4500. If price breaks below, not much demand until roughly 4427.
Bear Case: Price just below two major untested supply zones that start at 4570.25 (Daily) and a 690 minute one within the daily supply that sits at 4597.25. If price breaks below 4490, bears will need to hold price below to gain any momentum.
EARNINGS RELEASE CALENDAR
FOR WEEK OF JULY 17th
Expert Insights & Predictions
This is a condensed and summarized version of my in depth analysis of CAVA stock. CAVA’s journey began in 2006 when three childhood friends opened a Mediterranean restaurant called CAVA Mezze in Maryland. They later expanded by selling CAVA branded dips and spreads at grocery stores and hired Brett Schulman to lead those efforts. Schulman eventually became the CEO in 2010. In 2011, CAVA made a significant move by opening its first fast-casual restaurant, following a similar model to Chipotle.
In 2018, CAVA made a transformative acquisition by buying Zoes Kitchen, a Mediterranean chain with around 260 units, for approximately $300 million. The acquisition was financed by Act III Holdings, led by Ron Shaich, the founder of Panera Bread. This acquisition led to a substantial increase in CAVA’s unit count, with the company expected to have over 300 locations in the US by the end of 2023.
Financially, CAVA’s restaurant-level EBIT margins have been higher than Chipotle’s in 2003, especially when looking at CAVA branded units alone. However, CAVA’s below-the-line expenses, such as G&A, depreciation, and pre-opening costs, have been higher as a percentage of revenue compared to Chipotle. The reasons for these higher expenses include rapid unit growth, costs associated with Zoes conversions and closures, and unattractive results from the remaining Zoes stores in 2022.
Despite these challenges, CAVA has attractive unit economics and a clear path to improving operating efficiency over time. The company aims to have more than 1,000 locations nationwide by 2032, and its current growth trajectory and unit economics are promising.
In terms of valuation, there are high expectations priced into CAVA’s stock; my financial model, which assumes a roughly similar trajectory to CMG in the mid-to-late 2000’s, has CAVA earning ~$1.3 per share in 2027e; at Friday’s closing price of ~$48 per share, the stock trades at 35x – 40x 2027e earnings (midpoint of the estimate).
In summary, I think CAVA is an interesting concept; in my mind, it’s a better / more modern service model than Zoes. In the process of researching the business, I’ve also come to believe that Shaich’s involvement / investment is a very big deal. (In some ways, I think the decision to focus the company’s efforts solely behind the CAVA brand mirrors the decisions made on Panera and Au Bon Pain in the late 1990’s – “I wasn’t downsizing; I was focusing.”) While this idea will likely remain on the back burner as I continue to learn about the management team / key investors and the long-term opportunities for the business, I think this is a company that’s worth keeping an eye on.
Economic Data Calendar
