PNRA Market Research & Analysis Report
Updated May 23, 2014

Growth and Balance Sheet

The company reported net income of $42.4 million, or $1.55 diluted earnings per share, for the first quarter of fiscal year 2014 ending April 1. That's down from a net income of $48.1 million, or $1.64 diluted earnings per share for the same quarter last year. Revenues for the first quarter were $605 million, up from $562 million for the same quarter last year. Company owned comparable stores were up 0.1%, they were affected by the unfavorable weather for about 150 to 200 basis points. Moreover, the average check in this quarter grew 2.9% in comparison to the same quarter last year, reflecting retail price increase and favorable product mix. During the quarter the company opened 16 new bakery cafes, and 11 new franchisee bakery cafes, totaling 1,800 as of April 1, 2014. Bakery café sales for the quarter were up by 7.6%, in comparison to the same quarter last year, to $536 million; Franchise royalty and fees was up by 8.7% to $29 million; and Fresh dough and other product sales to franchisees was up by 8.5% to $41 million. Operating profit margin for the quarter was 11.07% compared to 13.58% for the same period last year, the decrease is primarily due to investments related to improvement of operational capabilities, technical resources, and customer experience. The company narrowed its fiscal year 2014 EPS guidance to $6.80 to $7.00. PNRA forecasted second quarter EPS of fiscal year 2014 are expected to be from $1.72 to $1.76, compared to actual EPS of $1.74 for the second quarter of 2013. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio is 0.88 and the industry average is 1.33. Also, the quick ratio of 0.55 is lagging behind the industry average of 1.21. The interest coverage ratio of 248.57 is in line with the industry average of 284.40. In terms of efficiency, the asset turnover ratio of 2.03 is better than the industry average of 1.41; the inventory turnover ratio of 100.14 is also standing better than the industry average of 45.42; and the ROE of 24.59% is much better than the industry average of 12.37%. 

Valuation

PNRA PE stands at 23.03 below the industry average of 48.24, but above the stock market average represented by the S&P 500 average of 18.04. The company is currently trading above maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 19.38x to 36.12x trailing 12-month earnings. PNRA's current Price/Sales of 1.71 is below the average of its industry of 4.97. PNRA’s head to head comparison to its main competitors shows that the company has average gross margin, but one that is well above the industry average. The operating margin is again average when compared to the selected competitors’ achieved margins, and it is above the industry average. The quarterly revenue growth of the company is middle range result when compared to the selected peers achieved growths for the quarter. PNRA trades at one of the lowest P/E ratio when compared to the selected peers, and also at one of the lowest P/S ratio. PNRA’s twelve trailing months EBITDA is $412.86 million. The stock is currently trading below its intrinsic value of $193.11, this suggests that the stock is currently undervalued at these levels. The beta of 1.18 implies higher volatility of the stock with respect to the S&P 500. PNRA has shown very favorable earnings consistency over the last five years. Moreover, the company earnings have increased by 25.18% over the last five years. The current quarter earnings in comparison to the same quarter last year have decreased by 5.48%. The company currently does not have any outstanding debt. PNRA’s current price levels are above the maximum level, 20.44% below the 52 week high of $194.77, and the technical analysis give neutral to positive view of the stock. The majority of the analyst ratings are hold and buy. PNRA currently does not pay any dividends. 

About PNRA

Panera Bread Company, together with its subsidiaries, owns, operates, and franchises retail bakery-cafes in the United States and Canada. The company operates in three 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 that offer fresh baked goods, made-to-order sandwiches, soups, salads, pasta dishes, custom roasted coffees, and other complementary products through on-premise sales, as well as provide catering services. The Franchise Operations segment licenses 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. As of April 1, 2014, it owned and franchised 1,800 bakery-cafes. The company was formerly known as Au Bon Pain Co., Inc. and changed its name to Panera Bread Company in August 1998. Panera Bread Company was founded in 1981 and is based in St. Louis, Missouri.

Competitor Comparison

Panera Bread Company (NasdaqGS: PNRA) N.V.

Highlights

Panera Bread Company, together with its subsidiaries, owns, operates, and franchises retail bakery-cafes in the United States and Canada. The stock closed yesterday’s trading session at $154.95. In the past year, the stock has hit a 52-week low of $149.60 and 52-week high of $194.77. The intrinsic value of the stock is above the current price. PNRA has a market cap of $4.23 billion and is part of the Services sector.   

• Strong operational presence in the retail bakery-café segment     
• Innovation in menu offerings providing competitive advantage  
• Unique supply-chain operation  

• Alleged violations of labor law may dent Panera’s image
• Strong competition from local and international players

PNRA Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. PNRA's 52 week high is $194.77, current price is $154.95, is 20.44% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 23.03 the average industry P/E ratio is 48.24 and is above the S&P 500 P/E ratio of 18.04.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 12.19 % of PNRA stock. Management's representation is large enough. This does satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

PNRA is trading in the range of $149.60 - $173.86 in the past 30 days. The stock has been showing support around the level of $150 and resistance in the $190 range. The stock is trading above the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 69.13. The stock rising from April 2013 to June 2013 when it hit resistance around $190 and contracted back to around $150 where it found support. Then, from October 2013 to March 2014 the stock was again in a bullish trend and again it hit the same resistance level at around $190 and contracted back again to $150, where it seems that it is finding support. On the MACD indicator there is a bullish sign, which is a further confirmation that the negative trend might be over. Also on May 15, on the daily chart there is a hammer candle at the previous support at around $150, giving yet another sign that he bearish trend might be over. Our indicators give a neutral to positive view of PNRA.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 9 Buy, 2 Outperform, 10 Hold, and 3 Underperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. PNRA’s annual EPS for the last 5 years were 2.78, 3.62, 4.55, 5.89 and 6.81 this type of earnings action is very favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. PNRA currently does not have any outstanding debt.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. PNRA’s EPS growth for this quarter relative to the same quarter a year earlier is -5.48%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. PNRA’s annual earnings growth rate over the past five years is 25.18%, above our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.