Sell-Side Weighs In On Panera Sale: Surprises And The Lack Of Thereof

Panera Bread Co PNRA announced on Wednesday a deal to be bought by JAB for $315 per share in cash, with the total transaction value at $7.5 billion, including the assumption of $340 million of net debt.

The Expected And The Surprising

While Bernstein said it anticipated JAB would be the acquirer, BMO Capital Market said it was surprised with Panera's willingness to sell, as it approached EPS growth inflection point.

JAB Clearly Made Offer Worth Panera's Value

BMO Capital Market analyst Andrew Strelzik said he views JAB's offer price is worth Panera's value, although terming the price as within the range he had previously published. The analyst thinks the 16.5–17 times multiple is highly attractive, given that the company's peak multiple over the last 10 years was only 14 times.

This valuation, according to BMO Capital Markets, represents a modest premium to the peak multiple JAB had paid for its previous restaurant transactions such as Krispy Kreme Doughnuts KKD and Peet's. The firm believes the premium Panera Bread commanded may be due to its stronger growth.

The firm also noted the company's first-quarter comps of 5.3 percent at company-operated units were ahead of its guidance. Terming the performance as impressive, the firm broached the possibility of meaningful potential upward bias to estimates.

More Deals Going Forward?

While acknowledging that JAB continues to consolidate the breakfast/coffee category, BMO Capital Markets noted that Dunkin Brands Group Inc DNKN remains to be taken out.

"The acquisition of PNRA could take a DNKN-JAB deal off the table in the near-term, but we wonder if JAB may revisit the asset at some point or if an alternative strategic buyer seeking greater exposure to the fastest growing daypart in the industry could use the opportunity to pursue a DNKN deal with limited alternative assets remaining," the firm opined.

Bernstein Reminds Of Its Forecast For Peak Comp Lift In Q1

Bernstein analyst Sara Senatore had premised her expectations that JAB would be the likely buyer on the fact that the latter had pursued a strategy of rolling up a portfolio of coffee and bakery chains such as Keurig, Einstein Bakery, Caribou and Peet's Coffee.

The firm noted that the deal is set to close in the third quarter of 2017.

Delving into the comps outperformance Bernstein said, "We had previously estimated that 1Q17 would make peak comp lift for company stores from Panera 2.0 conversions consistent with this sequentially accelerating trend."

Rating/Price Target

BMO Capital Markets rates Panera Bread a Market Perform and raised its price target to $315 to reflect the deal price. Bernstein has an Outperform rating on the shares of Panera Bread and a $270 price target.

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