Panera Trades At 20% Premium To Peers, Wedbush Downgrades Stock

Although Panera Bread Co PNRA continues to have drivers to outperform peers in same-store sales growth, Wall Street’s 2017 estimates currently appear optimistic, Wedbush’s Nick Setyan said in a report.

Setyan mentioned that Panera’s shares were trading at a 20 percent premium to peers, and that further multiple expansion seemed unlikely without upward comp and EPS revisions. He downgraded the rating on the company from Outperform to Neutral, while maintaining the price target at $220.

Sustained Same-Store Sales Growth

“Panera should continue to see the benefit of sales lifts from 2.0 at its company units, while franchisee 2.0 remodels have only just begun. Delivery will now be rolled out to 15% of system stores by YE16 and 35-40% by YE17. Therefore, even if the benefit from 2.0 wanes at company stores and/or the historical year 2 and 3 trends don’t materialize, the rollout of delivery could contribute up to 200bps to offset any 2.0 slowdown,” Setyan wrote.

Limited Upside To Current Street Estimates

While Panera 2.0 costs may be completed by the end of the year, the company may invest in technology and labor in 2017. Moreover, benefit from food costs would likely be less in 2017 compared to 2016, while Panera faces similar labor headwinds. The analyst projected “very low-teens” EPS growth for 2017, versus the Street’s 14 percent estimate.