A Panera Sale Is Far From Certain, And Any Potential Deal Will Face Challenges

UBS said in a note released on Tuesday a sale of Panera Bread Co PNRA is far from certain and that any potential deal would face challenges.

Prepping For A Sale?

Analyst Dennis Geiger noted media reports of Panera Bread working with advisers to review its strategic options, including a possible sale, after receiving interest from an unnamed party. Starbucks Corporation SBUX, Domino's Pizza, Inc. DPZ, Yum! Brands, Inc. YUM, Restaurant Brands International Inc QSR and JAB Holdings are being touted as potential suitors.

The analyst believes the likelihood of a strategic buyer being interested is greater than interest from financial sponsors, given the size of the company and valuation.

"We don't rule out interest from multiple parties given the strategic value of the franchise. But a sale is hardly guaranteed given current valuation and the likelihood PNRA will want a full price considering current momentum & a compelling LT outlook," the analyst added.

Rationale Behind The Move To Sell

UBS thinks the decision to sell at this time is understandable, given the improvement in operational and financial metrics and the valuation, which was approaching all-time highs even before the speculation concerning a sale began doing the rounds. The firm highlighted some positive aspects concerning the company:

• Attractive category and brand positioning, given an on-trend menu, focus on quality and the company's leadership position.
• Strong digital capabilities, a best-in-class loyalty program and expanding deliver initiative.
• The retail CPG business, which is targeting $1 billion in revenues, and still untapped int'l potential.
• Margin efficiency and cost savings synergies with strategic acquirors.

Complexities Foreseen For Potential Suitors

UBS sees market cap, valuation and asking price as hurdles for potential suitors.

"Additionally, acquisition by a heavily franchised restaurant and subsequent refranchising of PNRA likely wouldn't be accretive if a transaction were to get done at the current valuation, potentially limiting that option," the firm reasoned.

UBS has a Buy rating and a $265 price target for the shares of Panera Bread.

At the time of writing, Panera Bread shares were down 1.82 percent at $277.50.

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