Morgan Stanley Upgrades Panera, Believes Digital Initiatives Has Bread Company Well-Positioned For 2017 And Beyond

Morgan Stanley’s John Glass upgraded the rating for Panera Bread Co PNRA from Equal-weight to Overweight, while raising the price target from $204 to $250. Glass expressed optimism regarding the company’s digital initiatives resulting in above-consensus SSS and EPS growth in 2017 and beyond.

Analyst John Glass believes that Panera is among the few companies with multi-year EPS drivers.

The company has achieved greater control of its top line prospects over the next three years by “laying the foundation for digitally enabled sales, and building in capacities to layer in new sizeable adjacent markets such as delivery, consumer products and expanded catering,” Glass said, while pointing out that none of these are accurately reflected in the current Street estimates.

Panera 2.0

“After three years of investment and brand transformation, '16 should finally represent an inflection year that should usher in a multiple-year period of escalated SSS and EPS growth as the company fully benefits from its transition to a digital access model (dubbed Panera 2.0), enters meaningful adjacent categories (small order delivery, CPG) and expands existing ones (catering) and addresses costs throughout its P&L,” the Morgan Stanley report noted.

Estimates Set Higher Than Consensus

The analyst expects 2016 to be a transition year for Panera. Nonetheless, the EPS estimate for 2016 has been raised from $6.51 to $6.65.

The EPS estimate for 2017 has been raised from $8.00 to $8.25, which is 7 percent ahead of consensus expectations. The EPS estimate for 2018 has been established at $10.60, which is 16 percent higher than consensus expectations. the above-consensus EPS growth would be propelled by higher SSS and margin recapture.

Glass forecasted Panera to generate EPS growth in the +15 percent range in the longer term.