Wedbush upgraded Cava (CAVA) to "outperform" from "neutral" and raised the stock's price target to $48 from $35. Wedbush Securities Managing Director Nick Setyan joins Yahoo Finance to discuss his note on Cava.

"Even if the worst case scenario comes to pass and let's say comp is down ... mid-single digits, I still think ... investors are going to buy this name because that means in the back half of '24, they're going to be comping mid-single digit plus positive inclusive of positive transaction growth," Setyan says.

Cava has "proven that ... it is portable. It's worked across the country," Setyan adds. Additionally, "year-over-year, for a number of years, they've been posting positive transaction growth, which for growth investors, is the holy grail."

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

JOSH LIPTON: Investors appear bullish on Cava. The stock is up over 10% since its IPO in June. Shares rallying this month after the lock up period for insiders expired. The stock actually rising 15% on that expiration day on December 12th. Wall Street also bullish. The stock has 10 buys, 3 holds, and no sells.

We're joined now by one of those analysts who was upgrading the stock to outperform today. Here with more is Nick Setyan, Wedbush Securities Managing Director. Nick, good to see you. Let's talk about Cava. You're now a fan. You moved to outperform on the name. How come, Nick? Just walk us through the argument.

NICK SETYAN: Well, first, thanks for having me. You know, I was on the sidelines just to get some visibility around the first half '24 trends. And as we get closer to December, I mean, it's pretty clear what the Q4 comp is going to be. So even if you just maintain a similar trajectory, we're within sort of mid-single-digits of the 26% that have to anniversary.

In Q1, that's a huge number. But again on a two-year basis, even if the worst case scenario comes to pass and let's say comp is down mid-single-digits, I still think investors are going to by this name, because that means, in the back half of '24, they're going to be comping mid-single-digit plus positive inclusive of positive transaction growth. And so to me, that's before pricing, et cetera. So the chances of Q1 being down mid-single-digit are actually pretty low. But even if the worst case scenario passes, it's still palatable for investors at this point.

JULIE HYMAN: So-- and talk to us-- when we talk about, what is it that it's going to drive the growth here? Is it execution? Is it just that this kind this Mediterranean sort of food is what people want right now? What do you think is the real special sauce, for lack of a better word, special tahini, I don't know, for Cava, Nick?

NICK SETYAN: Yeah. I mean, it is a differentiated concept. There's no real national Mediterranean chain out there. It's proven that it is portable, it's worked across the country and in many, many states. The demographics are very similar to a Chipotle. The [INAUDIBLE] line is very similar to a Chipotle and sort of unit economics. So average unit volumes for retail margins, cash and cash returns very, very, very attractive.

And so, on top of that year-over-year for a number of years, they've been posting positive transaction growth, which for growth investors is the holy grail, right? I mean, 40-plus publicly traded restaurants, there's five that can talk about positive transaction growth on a consistent basis. And there's a lot of hope that Cava will be the sixth.