Analysts Applaud Panera Bread Co Buyback; EPS Outlook 'Cloudy'

Panera Bread Co.

plan to boost its buyback authorization by 25 percent helped drive its share up 11 percent Thursday, getting a generally warm reaction from analysts. The St. Louis-based cafe chain changed hands recently at $182.59, up $18.67. Prior to Wednesday's announcement, which included news of recent management meetings with activist hedge fund Luxor Capital, Panera had been down about 6 percent for the year. Although the company's earnings outlook "remains cloudy," Baird's David E. Tarantino said Wednesday's action supports "more positive investor sentiment" on the company as it makes investments to support the growth of its business. Tarantino maintained an Outperform rating and raised his price target 8 percent to $200. Panera's plan to borrow $500 million for the added buybacks is "a sign of management's confidence" that earnings-per-share growth will resume, according to Joseph T. Buckley of Bank of America, who maintained a Buy rating and $205 target. Buckley, who also maintained his 2015 EPS estimate of $6, calculated that shares outstanding will decline by between 11 percent and 12 percent as a result of buybacks. No element of Panera's plan signals that fundamentals have improved, according to Jeffries' Alexander Slagle, who maintained a Hold rating on the company. But the buyback and news of talks with Luxor are nonetheless significant. "Investors have recently shown strong interest in restaurant stocks with some kind of activist involvement," Slagle said. Luxor, along with the PW Partners fund, last year helped BJ's Restaurants, Inc.

agree to a $50 million buyback and obtained representation on its board after threatening a proxy fight. Stifel's Paul Westra applauded Panera's announcement, but said investors' reaction "has matched our own exuberance." Westra maintained a Hold rating on Panera, but boosted his 2015 earnings estimate 2.4 percent to $6.35 a share. UBS' Keith Siegner applauded the buyback and focused on the company's plans to revamp its technology with a focus on the company's "digital solutions." Siegner maintains a Buy rating and $205 target.