Which Way Does Panera Go From Here?

With shares of Panera Bread Co. (NASDAQ:PNRA) trading at around $183.74, is PNRA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

While most companies throughout the broader market are finding ways to cut costs, Panera plans on adding locations. This is a good sign as it indicates the company is confident in its future prospects. As most special eatery diners already know, Panera is known for its freshness, local ingredients, and atmosphere (WiFi included).

If you have ever walked into a Panera during lunchtime, then you know it's very crowded. And the afternoons attract people who want to work while enjoying a snack and/or beverage. The slowest time of day is dinner, which is why Panera is attempting to offer more at this time. Panera is especially trying to make a move with pasta. While there is potential, ordering pasta at Panera is akin to ordering a filet mignon at a diner. In other words, it's probably not a good idea. There's also a good chance that most diners have better local options for pasta than Panera. That said, don't knock it until you try it, right?

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Okay, enough about pasta. Pass or fail, pasta isn't going to be a determining factor for Panera. Looking at the big picture, Panera has grown revenue and earnings on an annual basis, and it still has a ton of growth potential domestically and internationally. Other positives include margin expansion and quality debt management. However, perhaps the most important factor of all is that Panera is now an established household brand name in the United States. As far as analysts go, they love the stock: 17 Buy, 8 Hold, 1 Sell.

There are a few negatives for Panera, which include missed earnings expectations, slightly slowing comps growth, and a lowered full-year comps growth expectation to 4.0%-5.0% from 4.5%-5.5%. There is also no yield.

Now let's take a look at some numbers. The chart below compares fundamentals for Panera, Starbucks Corporation (NASDAQ:SBUX), and Chipotle Mexican Grill (NYSE:CMG). Panera has a market cap of $5.34 billion, Starbucks has a market cap of $46.41 billion, and Chipotle has a market cap of $11.19 billion.

	PNRA	SBUX	CMG
Trailing   P/E	29.86	31.50	39.22
Forward   P/E	22.49	23.66	28.45
Profit   Margin	8.22%	10.80%	10.36%
ROE	23.18%	28.97%	23.75%
Operating   Cash Flow	$298.51 Million	$2.55 Billion	Hot Undervalued Companies For 2014    $515.84   Million
Dividend   Yield	N/A	1.40%	N/A
Short   Position	4.90%	1.40%	16.30%

 

Let's take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong   

The debt-to-equity ratio for Panera is stronger than the industry average of 0.90.

	Debt-To-Equity	Cash	Long-Term Debt
PNRA	0.00	$323.00 Million	$0
SBUX	0.10	$1.70 Billion	$549.60 Million
CMG	0.00	$507.50 Million	$0

 

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T = Technicals Are Strong   

Panera has performed exceptionally well over a three-year time frame. It's also one of the few stocks that held its own during the financial crisis. This doesn't mean it would hold up just as well if a similar situation were to present itself, but it's worth noting.

	1 Month	Year-To-Date	1 Year	3 Year
PNRA	3.70%	15.70%	16.84%	145.00%
SBUX	7.60%	16.40%	13.61%	153.50%
CMG	9.90%	21.18%	-11.62%	174.10%

 

At $183.74, Panera is trading above all its averages.

50-Day   SMA	171.26
100-Day   SMA	166.22
200-Day   SMA	163.96

 

E = Earnings Have Been Strong            

Earnings and revenue have consistently improved on an annual basis. Earnings have increased for 10 consecutive years.

	2008	2009	2010	2011	2012
Revenue   ($)in   billions	1.30	1.35	1.54	1.82	2.13
Diluted   EPS ($)	2.22	2.78	3.62	4.55	5.89

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings.

	3/2012	6/2012	9/2012	12/2012	3/2013
Revenue   ($)in   millions	498.58	530.59	529.34	571.55	561.78
Diluted   EPS ($)	1.40	1.50	1.24	1.75	1.64

 

Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Panera is known as a healthier option than McDonald's Corp (NYSE:MCD) and Yum! Brands (NYSE:YUM) restaurants. With the consumer more health-conscious than in past years, this has helped Panera as well as other healthy eating establishments. McDonald's has been offering more healthy options, which has helped it as well.

The problem for Panera is price. If the consumer weakens, which seems to be likely, then many consumers might choose cheaper alternatives. On the other hand, Panera offers atmosphere, and many consumers are willing to pay a little extra for atmosphere.

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Conclusion

Now that Panera has become a mainstream American brand with millions of loyal customers that enjoy one of the most casual and comfortable atmospheres available,  it's a long-term OUTPERFORM. However, a tentative consumer, a somewhat poor valuation, and an artificially-inflated stock market are reasons for caution.