Pat McKeough responds to many personal questions about stock investing and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle.
This week, we had a question from an Inner Circle on a U.S. company that operates a group of bakery-cafes. This stock has seen its share price rise substantially in the past year and Pat examines whether it can continue to maintain its strong niche in the face of intense competition among restaurant chains.
Q: Hi Pat: I’d really appreciate your view on U.S. food stock Panera Bread. Thank you.
A: Panera Bread Co. (symbol PNRA on Nasdaq; www.panerabread.com), operates 1,591 bakery-cafes in 41 U.S. states and Canada. Of that total, 776 are company owned and 815 are franchised. Panera aims to open a further 65 to 70 new bakery-cafes this year.
The company’s outlets operate under the Panera Bread, Saint Louis Bread Co. and Paradise Bakery & Café banners. They mainly offer freshly made sandwiches, baked goods, soup, salads, coffees and beverages. Panera’s cafes are mainly located in malls, and target people who live and work in suburban areas.
The company also operates a catering service that delivers sandwiches and other foods to parties and other functions.
In the three months ended June 26, 2012, Panera’s revenue rose 17.6%, to $530.6 million from $451.1 million a year earlier. Overall same-store sales rose 5.9%; same-store sales at company-owned outlets rose 7.1%, while franchised locations increased 4.8%. These gains were mainly the result of price increases that the company brought in to cover rising costs of wheat and other ingredients.
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Big rise in shares pushes p/e ratio to high level
Earnings rose 23.6%, to $44.1 million from $35.7 million. Because of fewer shares outstanding, earnings per share rose 27.1%, to $1.50 from $1.18.
The company’s balance sheet is sound. It holds cash of $255.8 million, or $8.63 a share, and has no debt.
Panera’s stock is up 40% in the past year, and now trades at a high 28.0 times the company’s projected 2012 earnings of $5.78 a share.
However, Panera’s formula of hand-made food, a warm atmosphere and attentive service continues to attract customers. The company bakes its breads and pastries in each store, without trans fats.
Panera makes its chicken sandwiches from meat that is free of hormones and antibiotics, and its food and hot drinks are served on china, with stainless-steel utensils. Chairs and tabletops are wood, and the floors are carpeted.
In the most recent Inner Circle Q&A, Pat looks at whether Panera’s shares can keep going up. He also examines the stronger competition the company is facing from big fast-food chains like McDonald’s, which are offering more fresh sandwiches and salads. He concludes with his clear buy-hold-sell advice on this stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
Because “everyone’s got to eat,” food stocks are generally considered a safe investment in any economy. Do you think this applies to a ‘food stock’ like Panera, especially when it has to compete with McDonalds and Yum? Let us know what you think.
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