UBS Says Panera Has Huge Upside

UBS commented on Panera Bread Co PNRA Wednesday and maintained a Buy rating and $185 price target.

Analysts led by Keith Siegner felt that the company's refranchising remained "an underappreciated opportunity" that could drive the stock to $265.

"The company is targeting 50-150 cafés to be refranchised this year, which we estimate would lift franchise ownership to ~53-58 percent from ~50 percent currently. Long-term system targets remain at 35-50 percent company-owned," according to Siegner.

The analyst note illustrated a scenario where franchise ownership was taken to 95 percent in a transaction that could be ~8 percent accretive to the firm's above-consensus 2017 EPS estimate of $8.61.

Siegner estimated a valuation of $265, 65 percent above the current share price, based on "pro forma estimates, an increased leverage profile, and a 15x EBITDA multiple more in line with highly franchised peers."

The analysts believed the announcement of a transformation similar to Wendys Co WEN "at its recent investor day to go to 95 percent franchised would be well received by investors and provide longer-term benefits for all stakeholders."

Siegner concluded that Panera Bread would return to "high-teens EPS growth" in 2015 and could see volatility over the next several quarters ahead of a possible announcement of a larger refranchising plan which "should support great earnings consistency and upside for shares."

Panera Bread recently traded at $162.94, up 1.8 percent.