Will Panera Bread Continue to Rise?

With shares of Panera Bread Co. (NASDAQ:PNRA) trading around $163.43, is PNRA an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalysts for the Stock’s MovementPanera

Panera will release its fourth-quarter fiscal 2012 earnings after the bell on February 5, and like any other company Panera’s stock is sensitive to its quarterly results. No surprises here, so what should we expect?

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On average, analysts are looking for a 22.5 percent growth in earnings to $1.74 per share, and 15.8 percent revenue growth to $574.09 million. Panera has beaten analyst estimates by about 4 percent for each of the last three quarters, which is a tremendously positive sign. Again, no surprises.

T = Technicals on the Stock Chart are Strong

As of January 14, Panera’s stock price was 0.99 percent above its 20-day simple moving average, or SMA; 0.85 percent above its 50-day SMA; and 3.94 percent above its 200-day SMA.

Since the beginning of 2013 the stock price has been in an upward trend, rising 2.90 percent this year to date and rising 13.47 percent year over year. What’s more, the stock is up 59.5 percent for the past two years, and 380 percent for the past 5 years. The company has demonstrated tremendous but stable growth for a number of years (also reflected in its earnings, as we’ll see) and the stock price reflects this.

As a benchmark, the S&P 500 has risen 3.12 percent year to date, and 14.09 percent year over year.

E = Earnings are Strong and Reliable

Panera has had steady top- and bottom-line for the past four years. What’s particularly attractive about this record is that Panera weathered the financial crisis while growing both revenues and earnings (4.2 percent and 25.3 percent, respectively).

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 1,067 1,299 1,353 1,542 1,822
Diluted EPS ($) 1.79 2.22 2.78 3.62 4.55

 

Analysts are looking for $2.13 billion in total revenues and $5.88 EPS for 2012, a healthy and realistic (though optimistic) gains of 16.9 percent and 29.2 percent, respectively.

Third-quarter revenue climbed 16.8 percent year over year, while EPS climbed 31.9 percent for the period.

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 453.09 495.76 498.58 530.59 529.34
Diluted EPS ($) 0.97 1.31 1.40 1.50 1.24

 

E = Excellent Performance Relative to Peers

Many investors favor return on equity as a key metric to diagnose how well a company is performing. While Panera boasts an ROE of 22.93 percent, it still lags its competition. Chipotle Mexican Grill (NYSE:CMG) has an ROE of 23.76 percent, and Starbucks (NASDAQ:SBUX) has an ROE of 29.16 percent.

It’s also important to look at operating margins, but unfortunately on this metric as well Panera lags its competitors. Panera has an operating margin of 12.76 percent, which compares to Chipotle at 17.02 percent and Starbucks at 15.02 percent.

Conclusion

For the dividend hunters out there, Panera is not a stock for you. At a trailing-twelve months P/E of 29.97, Panera does seem a bit expensive. But keep in mind its solid earnings and stock price history. Analysts are holding a mean price target of $185.16, a 13.2 percent upside on its January 14 closing price.

Because of this, and the metrics mentioned above, Panera looks like a long-term OUTPERFORM.

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