Valuation of Panera Bread

Valuation of Panera Bread Co (PNRA)

Jonathan Phebus

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Introduction

In this paper, I analyze and attempt to accurately value Panera Bread Company. Reuters describes the company as “a national bakery-cafe concept with 1,380 Company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario, Canada” [2]. Panera competes in the services sector, special eateries industry, with a main competitor being Starbucks. Figure 1 charts the price of Panera against Starbucks and the NASDAQ Composite Index for comparison over the past five years. Figure 2 on page 2 charts the price of Panera over the past three years against its 50-day simple moving average.

Figure 1: Panera’s price against that of Starbucks and the NASDAQ Composite Index over the past five years. [5] Panera Bread has grown significantly over the past decade and they are growing the company even through this recessionary period. In his letter to shareholders dated April 13, 2009, Chairman and CEO Ronald Shaich asserts “in the midst of this economic crisis, we will continue to build bakery-cafes we expect to be highly productive . . . . we will use this recession to strengthen our organizational capabilities” [4].

Jonathan Phebus

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Figure 2: Panera’s price with 50-day SMA over the past three years. [5]

II

2.1

Financial Analysis

Growth Rates

Table 1 details key growth rates for Panera and compares them against the industry and S&P 500. Growth Rates % Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Panera 2.60 N/A 16.20 23.08 17.40 N/A Industry 5.40 188.10 195.70 13.48 3.39 N/A S&P 500 10.40 10.30 109.20 7.81 8.36 5.01

Table 1: Panera Bread Co comparison of growth rates. [1] Overall, Panera’s net income (EPS) growth of 17.40% for the 5-year annual average handily beats the industry (3.39%) and S&P 500 (8.36%) growth rates....