Should Panera Be In Your Portfolio?

With shares of Panera (NASDAQ:PNRA) trading around $175, 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:

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T = Trends for a Stock’s Movement

Panera owns, operates, and franchises retail bakery-cafes in the United States and Canada. The company operates three business segments: bakery-cafe operations, franchise operations, and fresh dough and other product operations. The bakery-cafe operations segment operates company-owned bakery-cafes under the Panera Bread, Saint Louis Bread Co., or Paradise Bakery & Café names. The franchise operations segment licenses the Panera Bread or Paradise Bakery & Café names and monitors the operations of these bakery-cafes. The fresh dough and other product operations segment supplies fresh dough, produce, tuna, cream cheese, and proprietary sweet goods items. Panera has seen a very significant surge in demand for the products it offers so look for this company to continue to make profits into the future.

T = Technicals on the Stock Chart are Mixed

Panera has seen a euphoric rise in its stock price since hitting lows in the late 1990s. Currently, the stock is consolidating near all-time high prices but looks like it wants to continue higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Panera is trading above its tangled key averages which signal neutral price action in the near-term.

PNRA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Panera options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Panera Options

26.81%

73%

70%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

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Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Panera’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Panera look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

33.59%

27.84%

27.12%

28.44%

Revenue Growth (Y-O-Y)

15.29%

16.83%

17.63%

18.12%

Earnings Reaction

0.79%

5.04%

8.06%

6.62%

Panera has seen increasing earnings and revenue over the last four quarters. From these figures, the markets have been very excited about Panera’s last four earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Panera stock done relative to its peers, Chipotle Mexican Grill (NYSE:CMG), Einstein Noah Restaurant Group (NASDAQ:BAGL), Starbucks (NASDAQ:SBUX), and sector?

Panera

Chipotle Mexican Grill

Einstein Noah Restaurant Group

Starbucks

Sector

Year-to-Date Return

4.83%

7.6%

14.91%

5.45%

8.63%

Panera has trailed its peers and sector by a significant margin.

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Conclusion

Panera is a company that has seen explosive growth over the last few years. Investors have enjoyed a wonderful ride in the stock but that ride may be on pause for now. Earnings and revenue, for Panera, have been excellent over the last four quarters and investors have been happy. However, the stock has not performed well relative to its peers and sector. Look for Panera to OUTPERFORM.

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