We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Bakery-café giant Panera Bread Company is exploring strategic options (including potential sale) after a potential unidentified buyer showed interest, according to a Bloomberg report. Although it is still unclear which company Panera would prefer merging with, market speculation point at Starbucks Corporation (SBUX - Free Report) JAB Holding Co. or Domino’s Pizza Inc. (DPZ - Free Report) as the likely buyer.
However, none of the parties confirmed the reports. Wall Street watcher and TV personality, Jim Cramer, told CNBC that Starbucks suits the best though he did not reveal the source.
Does Panera Bread Suit a Buyout?
Consolidation is the name of the game in a sluggish and saturated restaurant industry where comparable sales growth is sliding.
After the news released, shares of Panera Bread rallied about 10% and finally closed 7.9% higher on Apr 3. The stock climbed 35.7% in the last three months, faring a lot better than the Zacks classified Retail–Restaurants industry’s 5.7% gain.
After yesterday’s rally, the $6.49-billion worth Panera Bread seems to be an expensive buy for any restaurant company, especially when the consumer spending environment is soft in the U.S.
From a valuation perspective, looking at the company’s price-to-earnings (P/E) ratio – one of the most commonly used valuation ratios and best suited for evaluating restaurants – investors might not want to pay further premium. The company currently has a trailing 12-month P/E ratio of 41.81, which is its highest level, in the last five years. The stock is relatively overvalued right now compared with its peers, as the industry's average P/E currently is 24.86.
That said, the company has plenty of upside left on the back of various sales-building and marketing initiatives, along with its focus on digitally enabled larger party-sized channels.
Consistent Player Amid Restaurant Recession
Looking at the fundamentals, Panera Bread seems well-positioned for consistent revenue growth. In fact, the company has recorded a historic sales growth of 8% in the last five years, while the industry’s average was 4.6%.
Despite an industry slowdown, comparable store sales (comps) at company-owned units grew 3% in the fourth quarter and 4.2% in 2016. Notably, comps at company-owned units reflect year-over-year retail price increase of 1.8% along with 1% year-over-year growth in entrees served as well as a positive mix impact of 0.2%.
In comparison, Chipotle Mexican Grill, Inc.’s (CMG - Free Report) comps fell 4.8% in the fourth quarter and plunged 20.4% in 2016. McDonald's Corp.’s (MCD - Free Report) U.S. same-store sales fell 1.3% in the quarter, and gained slightly by 1.8% for 2016.
While others in the restaurant space have struggled to generate sales owing to cautious consumers, Panera Bread has largely succeeded on its solid sales boosting and marketing strategies.
Going forward, focus on channels like catering and delivery, along with its Panera at Home business, bode well and should drive incremental revenues at the company. We are also positive on the company’s removal of all artificial ingredients from its food items, which is expected to drive its popularity among health-conscious consumers. All these factors project this year’s sales growth to be nearly 6% and 8.7% for 2018.
Moreover, the company has been working on its store design to enhance customer experience. In fact, the Panera 2.0 program, new store designs, along with innovation in food and operations, have started yielding results. Also, the company notes that the cafes which have been converted to Panera 2.0 continue to outperform the traditional ones.
All these initiatives are expected to translate into strong comps and sustainable double-digit EPS growth 2017 onward. The company expects adjusted EPS to be in the range of $7.45–$7.70, up 11–14% year over year in 2017. And the current Zacks Consensus expectations call for Panera Bread to grow EPS by 14% for 2017 and 16.6% next year.
Starbucks-Panera Bread Deal Looks Compatible
Panera Bread has stolen much of the spotlight from its competitors and is leading the race of offering fresh and additive-free foods. On the other hand, despite being a coffee chain giant, Starbucks is strengthening its portfolio with significant innovation around core food offerings. Apart from the numerous beverage innovations, Starbucks has also been making an effort to offer more nutritional and healthy products to its customers, which Panera Bread does quite well.
Panera Bread’s coffee is not exactly its strongest product. Here, Starbucks could benefit from Panera Bread’s food expertise and supply chain, while the latter could benefit from Starbucks’ ever-refreshing coffee.
Although it is too early to draw conclusion about the possible synergies both companies could get from the deal, investors should keep a close eye on this story.
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>
See More Zacks Research for These Tickers
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Is Panera Bread an Enticing Buyout for Starbucks?
Bakery-café giant Panera Bread Company is exploring strategic options (including potential sale) after a potential unidentified buyer showed interest, according to a Bloomberg report. Although it is still unclear which company Panera would prefer merging with, market speculation point at Starbucks Corporation (SBUX - Free Report) JAB Holding Co. or Domino’s Pizza Inc. (DPZ - Free Report) as the likely buyer.
However, none of the parties confirmed the reports. Wall Street watcher and TV personality, Jim Cramer, told CNBC that Starbucks suits the best though he did not reveal the source.
Does Panera Bread Suit a Buyout?
Consolidation is the name of the game in a sluggish and saturated restaurant industry where comparable sales growth is sliding.
After the news released, shares of Panera Bread rallied about 10% and finally closed 7.9% higher on Apr 3. The stock climbed 35.7% in the last three months, faring a lot better than the Zacks classified Retail–Restaurants industry’s 5.7% gain.
After yesterday’s rally, the $6.49-billion worth Panera Bread seems to be an expensive buy for any restaurant company, especially when the consumer spending environment is soft in the U.S.
From a valuation perspective, looking at the company’s price-to-earnings (P/E) ratio – one of the most commonly used valuation ratios and best suited for evaluating restaurants – investors might not want to pay further premium. The company currently has a trailing 12-month P/E ratio of 41.81, which is its highest level, in the last five years. The stock is relatively overvalued right now compared with its peers, as the industry's average P/E currently is 24.86.
That said, the company has plenty of upside left on the back of various sales-building and marketing initiatives, along with its focus on digitally enabled larger party-sized channels.
Consistent Player Amid Restaurant Recession
Looking at the fundamentals, Panera Bread seems well-positioned for consistent revenue growth. In fact, the company has recorded a historic sales growth of 8% in the last five years, while the industry’s average was 4.6%.
Despite an industry slowdown, comparable store sales (comps) at company-owned units grew 3% in the fourth quarter and 4.2% in 2016. Notably, comps at company-owned units reflect year-over-year retail price increase of 1.8% along with 1% year-over-year growth in entrees served as well as a positive mix impact of 0.2%.
In comparison, Chipotle Mexican Grill, Inc.’s (CMG - Free Report) comps fell 4.8% in the fourth quarter and plunged 20.4% in 2016. McDonald's Corp.’s (MCD - Free Report) U.S. same-store sales fell 1.3% in the quarter, and gained slightly by 1.8% for 2016.
While others in the restaurant space have struggled to generate sales owing to cautious consumers, Panera Bread has largely succeeded on its solid sales boosting and marketing strategies.
Going forward, focus on channels like catering and delivery, along with its Panera at Home business, bode well and should drive incremental revenues at the company. We are also positive on the company’s removal of all artificial ingredients from its food items, which is expected to drive its popularity among health-conscious consumers. All these factors project this year’s sales growth to be nearly 6% and 8.7% for 2018.
Moreover, the company has been working on its store design to enhance customer experience. In fact, the Panera 2.0 program, new store designs, along with innovation in food and operations, have started yielding results. Also, the company notes that the cafes which have been converted to Panera 2.0 continue to outperform the traditional ones.
All these initiatives are expected to translate into strong comps and sustainable double-digit EPS growth 2017 onward. The company expects adjusted EPS to be in the range of $7.45–$7.70, up 11–14% year over year in 2017. And the current Zacks Consensus expectations call for Panera Bread to grow EPS by 14% for 2017 and 16.6% next year.
Starbucks-Panera Bread Deal Looks Compatible
Panera Bread has stolen much of the spotlight from its competitors and is leading the race of offering fresh and additive-free foods. On the other hand, despite being a coffee chain giant, Starbucks is strengthening its portfolio with significant innovation around core food offerings. Apart from the numerous beverage innovations, Starbucks has also been making an effort to offer more nutritional and healthy products to its customers, which Panera Bread does quite well.
Panera Bread’s coffee is not exactly its strongest product. Here, Starbucks could benefit from Panera Bread’s food expertise and supply chain, while the latter could benefit from Starbucks’ ever-refreshing coffee.
Although it is too early to draw conclusion about the possible synergies both companies could get from the deal, investors should keep a close eye on this story.
Both Starbucks and Panera Bread carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>