Panera Bread Co (NASDAQ:PNRA). is set to report its 4Q12 earnings on Feb. 6 before the market opens. Panera has been one of the most consistent companies around, having beaten the consensus estimates for EPS and the company’s mid-guidance for the 19th quarter in a row when it reported its third quarter earnings in October. The company continues to deliver very strong and consistent fundamental growth, furthering the tradition from prior to (and throughout) the recession, and is among the fastest growing chains in the restaurant sector, with huge potential for additional expansion.
Panera’s valuation relative to other growth restaurants is definitely rich, as the company is trading at a forward P/E of 22.58, compared to the restaurant industry average of ~15x. However, the shares appropriately deserve a premium valuation given above-average unit growth (+7%), strong same store sales, high new unit returns, strong cash flow/balance sheet (no debt), and conservative share buyback guidance. Let’s compare some key valuation metrics of Panera with its peers, including Chipotle Mexican Grill, Inc. (NYSE:CMG) and Starbucks Corporation (NASDAQ:SBUX).
|Company||Chipotle Mexican Grill, Inc. (NYSE:CMG)||Starbucks Corporation (NASDAQ:SBUX)||Panera Bread Co (NASDAQ:PNRA)|
We can see that Panera is not that expensive after all. The company looks significantly undervalued whichever way we look at it. It has the lowest Price/Sales ratio, as well Price/Book ratio. Moreover, the company is trading in-line with Starbucks and at a significant discount to Chipotle, despite having a similar growth profile, and thus looks attractively priced on a PEG basis. Although Chipotle and Starbucks provide stiff competition which is not going to go away anytime soon, Panera scores over Starbucks and Chipotle in the breakfast segment as it offers a much wider variety of breakfast items. Moreover, the company has on-site kitchens that further enhance its breakfast reputation over its peers.
Going forward, I remain confident about the company’s ability to operate under a tough macro backdrop. The average check for Panera (~$9.50) is significantly lower than the usual $12-$15 range at which mid-scale casual restaurant chains operate, and thus the company is likely to attract consumers who are looking to trade down from pricier restaurant chains. While most of the restaurant chains experienced diminishing same store sales during the 2008-2009 economic slowdown, Panera actually posted an impressive store sales growth of 3%-3.5%. Thus, I believe Panera exhibits recession-proof characteristics and is a safe bet even during a slowdown.