Panera Bread Company

Mr. Dave Sluga

Mr. Dan Oleyourryk
SIMM
Company: Panera Bread Company (PNRA)
Recommenda!on: Buy
Purc"a#e Pr!ce: $%%.&'
Curren Pr!ce: $%(.((
Num)er o* S"are#: &+
,arge Pr!ce: $-..(%
Ba!lou Pr!ce: $%'.''
Reevaluae a: $-..(%
Company Analysis
Panera Bread Company !# a #mall cap #ock "a #ell# on "e NASDA/ 0!" "e !cker #ym)ol o*
PNRA. Panera Bread Company operae# !n "e rea!l )akery1ca*2 #egmen o* "e re#auran
!ndu#ry !n "e #erv!ce# #ecor. 3nder "e conrol o* C4O Ronald S"a!c"5 Panera Bread
Company *unc!on# under "e name# o* Panera Bread Company and S. 6ou!# Bread Company.
Or!g!nally5 Panera operaed pr!mar!ly only on "e ea# coa# )u "a# no0 opened up opera!on# !n
%& #ae#. Panera7# #ore# are locaed mo#ly !n #u)ur)an area# near mall# and o"er #"opp!ng
cener#. Panera Bread o**er# an a##ormen o* )read#5 del! #and0!c"e#5 #alad#5 and pa#r!e#
among o"er produc#. Panera compee# !n "e re#auran !ndu#ry aga!n# #uc" re#auran# a#
McDonald7# and 8endy7#5 )u Panera7# d!**eren!a!on *rom !# compe!or# come# *rom !# ca*2
env!ronmen !nclud!ng a more up1#cale and "eal"y menu (#ee menu).
Panera Bread Company )egan a# Au Bon Pa!n Company !n .(9. opera!ng on "e ea# coa#. In
.((% Au Bon Pa!n Company purc"a#ed S. 6ou!# Bread Company5 0"!c" 0a# compr!#ed o* :'
)akery1ca*e# !n "e S. 6ou!# area. ;rom "e year# .((% o .((<5 "e )akery1ca*e name# c"anged
o Panera Bread. In .(((5 Au Bon Pa!n Company #old all )u#!ne## un!# e=cep *or Panera and
"e company 0a# renamed Panera Bread Company. S!nce "e compan!e# re#rucur!ng Panera
Bread Company "a# )ecome one o* Bu#!ne## 8eek7# >.'' ?o @ro0" Compan!e#.A
Panera Bread Company "a# recogn!Bed large #cale gro0" !n recen Cuarer# and !# no0 on pace
*or large gro0" rae# !n "e *uure. Panera currenly "a# -:( *ranc"!#e operaed #ore# and .<%
company1o0ned )akery1ca*e#. Panera7# a)!l!y o !ncrea#e #ale# o* *ranc"!#e# "a# ena)led
Panera o gro0 rap!dly. Panera doe# no #ell #!ngle1un! *ranc"!#e# )u ra"er #ell# *ranc"!#e
agreemen# o* generally .& #ore# !n D year#. Panera "a# #r!c cr!er!a "a mu# )e me o )uy a
*ranc"!#e !nclud!ng a cera!n amoun o* cap!al "a !# reCu!red. Panera depend# on !ncrea#ed
#ale# o* *ranc"!#e# and !ncrea#ed revenue# !n #ame #ore #ale# o con!nue a !# large gro0" rae.
Panera Bread Company !# a #mall cap company 0!" grea gro0" poen!al a# "e!r name
)ecome# more 0!dely kno0n.
News and Current Events
,"e *a# *ood re#auran# "ave )een "! "ard )y "e recen "eal" craBe "a "a# #ruck "e 3n!ed
Sae#. ,"!# con#umer rend "a# )ene*!ed Panera #!gn!*!canly )ecau#e Panera o**er# 0"a mo#
con#umer# )el!eve o )e a "!g"er Cual!y produc a a #l!g"ly "!g"er co#. McDonald7# and
Burger E!ng are aemp!ng o caer o "e "eal" con#c!ou# con#umer )y crea!ng more "eal"
e**!c!en produc#. ?o0ever5 compan!e# #uc" a# Panera Bread and 8endy7# BaFa ;re#" "ave a
leg up on "e compe!!on. On "e nega!ve #!de5 no0 "a mo# *a# *ood re#auran# "ave #een
"e con#umer rend *or "eal"!er *ood5 compe!!on "a# gro0n. ;a# *ood c"a!n# are aler!ng "e!r
menu# o #ay curren 0!" "e need# o* "e con#umer#5 0"!c" 0!ll !ncrea#e compe!!on *or
Panera Bread.
On Novem)er ..5 Panera Bread Company announced "a #ale# "ave !ncrea#ed &..+ *or "e
mon" o* Oco)er. Bo" company1o0ned and *ranc"!#ed )akery1ca*e# 0ere #ucce##*ul !n
Oco)er.
Oco)er %'5 :''-
Company1o0ned Sale# Increa#e %.-+
;ranc"!#ed Sale# Increa#e &.9+
,oal Sy#em Sale# Increa#e &..+
,"!# !# a prom!#!ng repor o Panera !nve#or# !n "a ! #"o0# "a )o" #egmen# o* opera!on#
0ere a)le o generae !ncrea#ed #ale# !n Oco)er. ,"e !ncrea#e !n *ranc"!#ed )akery1ca*e# !#
par!cularly #!gn!*!can )ecau#e *ranc"!#ee# pay royal!e# and add o "e adver!#!ng pool on a
percenage o* #ale# )a#!#. Panera Bread )el!eve# "a "e *!gure# are !nd!ca!on# o* "o0 0ell
Panera can do !n "e *uure.

On Decem)er :5 :''- Panera Bread announced "a !# C"!e* Opera!ng O**!cer and 4=ecu!ve
G!ce Pre#!den5 Paul ,0o"!g5 "a# re#!gned. ,0o"!g "a# #erved !n "e#e 0o role# *or Panera
Bread #!nce Hanuary :''%. No #aed e=plana!on "a# ye )een g!ven *or ,0o"!g7# re#!gna!on.
Panera Bread 0!ll u#e *our o* !# Sen!or G!ce Pre#!den# o *!ll ,0o"!g7# 0o role# !n "e
organ!Ba!on. HP Morgan "a# #aed "a "!# re#!gna!on 0!ll re#ul !n a neural c"ange !n Panera
Bread7# #ock pr!ce5 0"!c" !n!!ally *ell $.%- *ollo0!ng "e ne0# )u !# #ead!ly recover!ng.
Industry Analysis
Panera Bread Company operae# !n "e very compe!!ve re#auran !ndu#ry. Panera !# kno0n a#
a ca#ual *a# *ood re#auran5 0"!c" mean# "a "ey are a *a# *ood prov!der )u produce a "!g"er
Cual!y produc and o**er# a un!Cue d!n!ng env!ronmen. ,"e *a# *ood re#auran !ndu#ry !#
e=remely compe!!ve. Panera Bread compee# aga!n# all "e large *a# *ood compan!e# #uc" a#
McDonald7#5 Burger E!ng5 and 8endy7# a# 0ell a# ca*e# #uc" a# Sar)uck# and Ne0 8orld
Re#auran @roup Inc. Panera Bread Company !# one o* "e younger compan!e# !n "e !ndu#ry5
0"!c" mean# "a room *or gro0" !# #!ll a)undan. McDonald7# "a# no0 moved !no glo)al
marke# and !# *ocu#!ng muc" o* !# marke!ng !n "o#e marke#. Panera Bread d!**eren!ae#
!#el* *rom "e normal *a# *ood c"a!n )y o**er!ng a )akery and del! #yle #and0!c"e#. Panera "a#
*ound a d!#!nc!ve n!c"e !n "e re#auran !ndu#ry ena)l!ng ! o marke o a gro0!ng co#umer
pool "a 0an# )eer Cual!y *ood.
Competitors
McDonald7# !# "e large# *a# *ood c"a!n !n "e 0orld. ,"ey "ave )een very #ucce##*ul !n
e=pand!ng !no !nerna!onal marke#. McDonald7# C4O5 C"arl!e Bell5 recenly #epped do0n
due o "eal" concern#5 0"!c" re#uled !n a pr!ce *all !n "e!r #ock. ?o0ever5 #!nce "e nam!ng
o* H!m Sk!nner a# C4O5 analy## "ave rea**!rmed a po#!!ve oulook on McDonald7#. ,"e
#ucce## o* Panera Bread and o"er #uc" place# "a# *orced McDonald7# o rea##e## "e!r menu and
add "eal"!er !em#. McDonald7# al#o marke# o a d!**eren marke "an Panera Bread !n "a
McDonald7# !# a lo0 co# prov!der. Panera Bread #ay# !n #u)ur)an area# 0"!le McDonald7# "a#
a #u)ur)an pre#ence )u al#o *lood# "e c!!e#. So al"oug" McDonald7# and Panera Bread do no
operae oo #!m!larly5 "ey do compee !n "e #ame !ndu#ry and ! !# !mporan o look a
McDonald7# a# a ma!n compe!or 0"en analyB!ng "e re#auran !ndu#ry.
Sar)uck# Corpora!on "a# a very #!m!lar n!c"e o "a o* Panera Bread Company. ?o0ever5
Sar)uck# concenrae# only on "e )everage #!de o* "e ca*2. Panera Bread al#o #ell# co**ee# and
cappucc!no# a# Sar)uck# doe#5 )u Panera "a# a 0!der var!ey o* produc# o #ell. Sar)uck# and
Panera are con#!dered o )e compe!or# )ecau#e "ey )o" "ave a ca*2 env!ronmen. Sar)uck#
"a# )een e=remely pro*!a)le !n year# pa#. Bo" compan!e# ake advanage o* "e un!Cue
env!ronmen "a a ca*2 prov!de#.
Ne0 8orld @roup Inc. o0n# and operae# #everal d!**eren compan!e# en!led 4!n#e!n Bro#.5
Noa"I#5 Man"aan5 C"e#apeake5 and Ne0 8orld Co**ee. Ne0 8orld @roup #ell# ca*2
)everage#5 )agel#5 #oup#5 #alad#5 and de#er# among o"er produc#. Ne0 8orld @roup7# ca*e#
may )e "e mo# d!rec compe!!on o Panera Bread. Ne0 8orld @roup !# a muc" #maller
organ!Ba!on "an Panera Bread )u )o" produce #!m!lar produc# and arge a #!m!lar cu#omer
)a#e.
Risks
A maFor r!#k *ac!ng Panera Bread !# "e "!g" level o* compe!!on "a e=!## !n "e!r !ndu#ry.
,"e re#auran !ndu#ry !# ra"er #auraed e#pec!ally !n "e *a# *ood #egmen. McDonald7#5
Burger E!ng5 and 8endy7# are a *e0 o* "e *a# *ood c"a!n# "a already "ave a #rong repua!on
!n "e !ndu#ry. I may )e d!**!cul *or Panera Bread o ga!n marke #"are !n #ome marke#
)ecau#e o* "e #rong pre#ence and name recogn!!on o* "e#e and o"er *a# *ood re#auran#.
Panera Bread mu# con!nue o d!**eren!ae !#el* *rom "e#e *a# *ood Fuggernau# "roug"
produc Cual!y and d!n!ng env!ronmen.
Panera Bread "a# #pec!*!c cr!er!a "a mu# )e me *or a per#on o open a *ranc"!#e. Included "e
enrepreneur mu# open up .& *ranc"!#e# !n D year# and "ave a ne 0or" o* $<.& m!ll!on 0"!le
"av!ng Cual!*!ed #k!ll# !n "e re#auran and real e#ae !ndu#ry. Panera Bread depend# upon
*ranc"!#e# *or muc" o* "e!r gro0" and #r!c gu!del!ne# may pro"!)! #ome poen!al *ranc"!#ee#
*rom )e!ng *ormed. ?o0ever5 rap!d gro0" e=pan#!on may al#o lead o Cual!y conrol pro)lem#
concern!ng loca!on# and produc#.

Valuation
Panera Bread !# a rela!vely ne0 player !n "e re#auran !ndu#ry. I 0a# no un!l .((( "a "ey
made an !mpac !n "e !ndu#ry and !nve#or# )egan o real!Be "e!r poen!al. Panera7# "!#or!cal
daa #"o0# "e!r urnaround !n gro0" and "e !mpac ! "a# "ad on "e!r #ock pr!ce. Panera
Bread7# #ock pr!ce "a# #ead!ly )een !ncrea#!ng a an !mpre##!ve rae. ,"e a##ump!on# u#ed !n
"e *ree ca#" *lo0 analy#!# are )a#ed on "!#or!cal #a!#!c# a# 0ell a# gro0" proFec!on# !n "e
*uure. Panera Bread #!ll "a# muc" room o e=pand !n "e re#auran !ndu#ry and "a# #"o0n
muc" !nd!ca!on "a "ey plan o do Fu# "a. Panera Bread doe# no currenly pay d!v!dend#5 #o
"e *ree ca#" *lo0 analy#!# and marke compara)le analy#!# are "e )e# mea#uremen# o *!nd
Panera Bread7# !nr!n#!c value.

Free Cash Flow Analysis
Panera Bread Company doe# no "ave any de) #o "e!r co# o* eCu!y and 0e!g"ed average co#
o* cap!al percenage# are "e #ame. ,"!# re#uled !n Panera Bread7# *ree ca#" *lo0 o eCu!y
!nr!n#!c value and *ree ca#" *lo0 o "e *!rm !nr!n#!c value o )e "e #ame amoun. ,"e co# o*
eCu!y *!gure !# par!cularly lo0 and !# very clo#e o "e #u#a!na)le *ree ca#" *lo0 gro0" rae.
,"!# re#ul# !n large pr!ce var!a!on# !* e!"er *!gure !# alered even #l!g"ly.
Panera Bread plan# on !ncrea#!ng gro0" )y !ncrea#!ng #ame #ore #ale# and open!ng more #ore#
"roug" *ranc"!#e#. Panera Bread7# gro0" rae !n )akery1ca*2 #ale# !# :'+ !n "e *!r# year5 .&+
!n "e #econd year5 and .'+ !n "e *ollo0!ng year#. In :''% "e!r )akery1ca*2 #ale# gre0 :&+
and Panera Bread !# aga!n !n l!ne *or *uure gro0". Panera Bread7# *ranc"!#e royal!e# and *ee#
are e#!maed o gro0 :&+ !n "e *!r# year5 :'+ !n "e #econd year5 and .&+ !n "e *ollo0!ng
year#. ,"e#e gro0" rae# are !n l!ne 0!" pa# daa and 0!" pred!ced !ncrea#e# !n *ranc"!#e#.
;re#" doug" #ale# o *ranc"!#e# !# "e mo# rap!dly gro0!ng #egmen o* revenue# a %&+ !n year
one5 %'+ !n year 0o5 and :&+ !n eac" o* "e *ollo0!ng "ree year#. ,"e#e #egmened gro0"
rae# y!eld oal revenue gro0" o* :%+ !n :''-5 .9+ !n :''&5 .%+ !n :''D5 and .-+ !n :''<
and :''9. ,"e#e gro0" rae# are rela!vely con#erva!ve e#!mae# compared o "!#or!cal daa
and analy# e#!mae#. ,"e co## and e=pen#e# 0ere *oreca#ed a# a percenage o* #ale# )a#ed on
"!#or!cal daa o"er "an deprec!a!on and amor!Ba!on5 0"!c" !# proFeced a# a percenage o*
propery and eCu!pmen )a#ed on "e *oreca#ed )alance #"ee. ,"e gro0" !n propery and
eCu!pmen (cap!al e=pend!ure#) o* .D+ !# )a#ed on *uure gro0" opporun!!e#. ,"e gro0"
rae !n ne 0ork!ng cap!al o* .:+ !# an e#!maed num)er )a#ed on *uure gro0" !n *ranc"!#e#.
,"e mo# #en#!!ve e#!mae !# "e #u#a!na)le *ree ca#" *lo0 gro0"5 0"!c" c"ange# "e pr!ce
#!gn!*!canly a# #een !n "e #en#!!v!y analy#!#. ,"e *ree ca#" *lo0 gro0" rae o* 9+ !# a
proFeced *!gure #uppored )y "e company7# !ncrea#e# !n oal revenue# and ne !ncome *or "e
ne= *!ve year#.
,"e proFec!on# #aed a)ove *oreca#ed an !ncome #aemen *or "e ne= *!ve year#5 0"!c" 0a#
"en u#ed o aa!n pre#en value ca#" *lo0 *!gure# and a erm!nal value. ,"e !nr!n#!c value "a
re#uled )a#ed upon our proFec!on# !# $-..(%. I !# !mporan o noe "a eac" proFec!on doe#
!n*luence "e !nr!n#!c value Cu!e #!gn!*!canly. ?o0ever5 0e *eel "a Panera Bread 0!ll e=pand
!n *uure year# #!nce !# curren #ore# "ave proved o )e e=remely #ucce##*ul and "ere !# a need
*or "e marke "a Panera Bread marke# o. ,"e e#!maed !nr!n#!c value #"o0# "a Panera
Bread7# #ock !# undervalued #l!g"ly.
Ratio Analysis
Panera Bread7# *!nanc!al ra!o# #"o0 "a "ey "ave con#!#enly )een !mprov!ng over "e la#
*our year#. ,"e!r pro*! marg!n "a# )een #ead!ly !ncrea#!ng5 0"!c" #"o0# "a "ey "ave )een
a)le o generae ca#" *rom opera!on# greaer "an "e!r e=pen#e#. Panera Bread7# reurn on
a##e# and reurn on eCu!y "ave )een !mprov!ng #"o0!ng "a al"oug" "e!r a##e# and eCu!y
are gro0!ng "e!r ne !ncome !# gro0!ng a a "!g"er rae. ,"e!r earn!ng# per #"are "ave )een an
!mpre##!ve #a!#!c. Panera Bread7# :''% earn!ng# per #"are dou)led "e!r :''. *!gure. 6ook!ng
a "e!r "!#or!cal pr!ce#5 one can #ee "a "e!r #ock pr!ce "a# !mproved dra#!cally #!nce .(((.
,"e!r pr!ce o earn!ng# ra!o !# currenly a %&.:(5 0"!c" !nd!cae# "a Panera !# #!ll e=pand!ng !n
"e re#auran !ndu#ry. Panera Bread "a# a con#!dera)ly #maller marke cap "an !# 0o larger
compe!or#5 Sar)uck# and McDonald7#5 )u "a# a #!gn!*!canly "!g"er gro0" rae "an eac"
company. Panera Bread7# ra!o# reveal "a "ey "ave )een very compe!!ve !n "e re#auran
!ndu#ry !n compar!#on o "e!r compe!or#.
Ano"er valua!on me"od "a can )e u#ed o *!nd "e !nr!n#!c value o* Panera Bread !# u#!ng
"e!r marke compara)le#. ,"!# me"od u#e# "e!r *oreca#ed ne !ncome and ra!l!ng PJ4 ra!o o
develop a "or!Bon value. ,"e pre#en value o* ca#" *lo0# !# "en u#ed o der!ve Panera Bread7#
value o* eCu!y. ;rom "e#e calcula!on# "e !nr!n#!c value o* $&..<D !# developed. ,"!# pr!ce
#ae# "a Panera Bread7# #ock pr!ce !# currenly under pr!ced. ?o0ever5 0e value "e *ree ca#"
*lo0 e#!maed !nr!n#!c value o* $-..(% greaer. I !# a more con#erva!ve e#!mae5 0"!c" !#
!mporan #!nce "e pred!ced gro0" rae# are #o #en#!!ve o "e re#ul#.
Investment Recommendation
8e *eel "a Panera Bread Company !# a #ound company 0!" real gro0" poen!al. A "!# !me
"oug"5 0e do no *eel "a Panera Bread !# a 0!#e !nve#men *or "e SIMM por*ol!o )ecau#e
"e ;C;; and ;C;4 value "e #ock Fu# a)ove !# curren #ell!ng pr!ce. ,"e #mall reurn o*
a)ou $: !# no 0or" "e r!#k !nvolved !n )uy!ng "e #ock. 8e *eel "a "!# #ock 0ould )e a
)uy a "e pr!ce o* $%%.&'5 0"!c" 0ould g!ve u# a reurn on !nve#men o* appro=!maely :'+.
A "e on#e o* "!# valua!on proce## Panera Bread 0a# #ell!ng a $%&.&'5 )u due o a #rong
mon" o* Novem)er *or #ock#5 Panera Bread7# pr!ce ro#e o $%(.((. 8e 0ould recommend "!#
#ock a# a )uy !* "e pr!ce d!p# o a level "a 0ould re#ul !n a reurn o* around :'+. I* "!# doe#
occur depend!ng on "e rea#on# *or "!# drop !n pr!ce5 0e *eel "a Panera Bread 0ould )e a
#rong )uy *or our por*ol!o.
On average5 pro*e##!onal analy## "ave recommended !nve#or# o "old or )uy Panera Bread
#ock#. Mo# analy## #uc" a# HP Morgan )el!eve "a Panera Bread7# proper value !# $-:.''.
,"!# re1emp"a#!Be# our valua!on o* Panera Bread7# #ock pr!ce a $-..(%. Analy## are
encouraged 0!" Panera Bread7# recen gro0" rae#. Panera Bread !# (&+ o0ned )y !n#!u!on#
mean!ng "a "e larger !n#!u!onal !nve#or# l!ke Panera Bread a# an !nve#men.
Sources
Panera Bread Company e!site
"p:JJ000.panera.comJ
Bi"charts#com
"p:JJ)!gc"ar#.marke0ac".comJ
http$%%money#cnn#com%
Brownco#com
"p#:JJ#!e#.#ockpo!n.comJ)ro0nco%JlookupJne0#Kre#earc"Jne0#Jar!cle
Panera Bread: COO Re#!gna!on: G!e0 a# Neural 4ven
Panera Bread7# SLP Sock Repor
8e ,"!nk Panera Bread !# a ;!ne Small1Cap @ro0" Sock
http$%%&inance#yahoo#com%
www#c!s#marketwatch#com