Impact of valuation
So far in this series, we have discussed Panera Bread’s (PNRA) comps (same-store sales) and how they affect revenue. In this part, we’ll look at how the valuation PE (price-to-earnings multiple) impacts Panera’s stock price.
In the chart above, you can see that Panera’s share price has trended in line with the firm’s forward PE. Panera is a stable company with a history of positive earnings, so it’s appropriate to use the PE to determine how the share price is impacted.
Following 1Q15, analysts revised their forward EPS (earnings per share) estimates to $6.21 from $6.25. This 0.6% drop was reflected in its share prices, which also fell by 0.6%.
To mitigate such risks, you might consider investing in the broader Consumer Discretionary Select Sector SPDR Fund (XLY), which invests 4% of its portfolio in McDonald’s (MCD), 1.5% in Yum! Brands (YUM), and 0.3% in Darden Restaurants (DRI).
Share repurchase program
The company recently announced a “value enhancing initiative,” that includes an increase in its share repurchase program, bringing it to a total of $750 million. As part of the initiative, the firm has also authorized $500 million in new debts and refranchised 73 of the company-owned stores. Following this announcement, Panera share prices rose by 11%.
The chart above shows how the analyst-estimated long-term operating income growth has trended with the firm’s valuation. The analysts revised their estimate for long-term operating income following the 1Q15 announcement. This may mean that the analysts are expecting better operating efficiency with the Panera 2.0 initiative, the new marketing campaign, and the refranchising of company stores, which should allow management to focus on the brand.
How will Panera trade in the coming quarters?
Wall Street analysts have a consensus target of $193 on Panera Bread. A lot is riding on the company’s comps, which are expected to come in at ~2% to 3% in fiscal 2015. Getting the customers through Panera’s doors will be important in the coming quarters as well. This will also demonstrate if the new marketing campaign that the company rolled out this June was a success. Naturally, increased traffic should only only add to the comps, which would be positive for Panera.