Why Panera’s Valuation Multiple Rose after JAB’s Offer

Rajiv  Nanjapla - Author

Apr. 6 2017, Updated 9:07 a.m. ET

Valuation multiple

Valuation multiples help investors decide whether to enter or exit stock. Valuation multiples are driven by perceived growth, risk and uncertainty, and investors’ willingness to pay.

Of the various valuation multiples, we’re using the forward PE (price-to-earnings) ratio due to the high visibility of Panera Bread’s (PNRA) earnings. The forward PE ratio is calculated by dividing a company’s current share price with its EPS (earnings per share) forecast for the next 12 months.

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Panera’s PE multiple

JAB Holding’s offer to acquire Panera at $315 per share increased Panera’s stock price, which also raised its PE multiple. As of April 5, 2017, Panera was trading at a forward PE multiple of 38.8x—compared to 32.6x before the acquisition rumor started to surface on April 3, 2017.

The purchase price of $7.5 billion was ~41x Panera’s 2016 earnings. The price was 19.5x its EBITDA (earnings before interest, tax, depreciation, and amortization).

On the same day, Panera’s peers Chipotle Mexican Grill (CMG) and Shake Shack (SHAK) were trading at PE multiples of 50.2x and 60.6x, respectively.

Analysts’ recommendations

As of April 5, 2017, analysts were expecting the stock price to reach $293.56 in the next 12 months, which represents a fall of 6.2% from the current price. Of the 25 analysts that follow Panera, 32% are recommending a “buy,” while 68% are recommending a “hold.” None of the analysts are recommending a “sell.”

You can also gain exposure to Panera by investing in the iShares S&P Mid-Cap 400 Growth ETF (IJK). IJK invested 0.76% of its holdings in Panera Bread.


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