Mediterranean fast-casual chain Cava (CAVA) reported better-than-expected fourth quarter results, with revenue of $177.17 million topping estimates of $174.09 million. Adjusted EPS came in at $0.02, edging past expectations of $0.01 per share.

Restaurant analyst and Citi Director Jon Tower joined Yahoo Finance Live to discuss Cava's potential for growth. He attributed the company's strong fourth-quarter to "strong traffic." Tower notes Cava is digitally enabled and offers attractive, high-quality Mediterranean food at affordable prices –– positioning it well as consumers gravitate toward fast-casual dining.

With no "large competitors" in the Mediterranean restaurant space, Tower says Cava is "effectively capitalizing" on this advantage. He currently rates CAVA shares Neutral but needs "more confidence" in continued unit growth before considering an upgrade.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

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- Shares of CAVA soaring in today's trading after posting a strong finish to 2023. The vast casual chain beating estimates on revenue, adjusted earnings per share, and same store sales expectations. It also issued a stronger-than-expected annual outlook. Let's bring in Jon Tower, Citi director and restaurant analyst for more on this. What do you think is sort of the primary driver here of this surprise coming from CAVA, Jon?

JON TOWER: It's strong traffic. I mean, they're executing at the store level. They've got products that consumers like. And they're competing in a category that's effectively where the consumer wants to be with respect to, you know, fast, convenient, reasonable price point, high-quality food, and digitally enabled. And I think all of those things are working exceptionally well. You can look at Chipotle as another example. Wingstop, same idea.

This fast casual space right now seems to be on fire. And I don't think there's anything relatively new. It just seems to be showing up on the relative results right now within the subcategory. So-- and when you think about the brand itself, they are effectively carving out a category of one.

When you think about Mediterranean chains across the US, there really isn't a large competitor nor any threats of any real competition moving in anytime soon. So they've got quite a bit of runway ahead. And I think they're just effectively capitalizing on it with delivering at the store for the consumer every single day on every transaction.

- And, Jon, correct me if I'm wrong, but you're actually neutral on this name, Jon. So what would you need to see before getting more bullish?

JON TOWER: Yeah, look, it's tricky. They've executed really well. They've continued to put up numbers that best expectations, they came out of the gate with a fairly rich multiple. And that's actually expanded. So we've been wrong.

And, you know, I'd like to get more confidence in the idea that unit growth is going to continue to exceed the numbers that they're putting out there. This year, they've guided 48 to 52. Early evidence suggests that they're probably going to beat that. Certainly, they did it in 2023. Looks like they could probably do it again in 2024.

So that's one piece of it. And then the other part is continued upside on the EBITDA front. And they guided 2024 above the Street. It was within our-- their range was within our estimate. So we didn't necessarily see upside to our numbers coming out of this. So it's really just continuing to execute and deliver. And I just like a better entry in the stock price. That's it. I mean, where it's trading today is-- it's rich.