Longbow Is Now A Believer In Panera 2.0, Upgrades Stock To Buy

Longbow’s Alton Stump believes that while Panera Bread Co PNRA's Panera 2.0 “got off to a tough start but results improved significantly since mid-2015 and could drive meaningful upside to same-store sales growth forecasts for PNRA over the next 18+ months.”

Stump upgraded the rating on the company from Neutral to Buy with a price target of $239.

Panera 2.0

The analyst mentioned that previous industry checks revealed that Panera franchisees had started to believe by the end of 2015 that 2.0 was worth its conversion costs, and expected to accelerate rollout into franchised locations in 2016–2017.

“During mid-2013 through early 2015 PNRA’s previously impressive product mix story dried up entirely behind deteriorating catering trends,” Stump stated.

Related Link: Panera Could Gain From Cosi Bankruptcy

On a positive note, catering sales have recovered well since mid-2015, following management’s rollout of hubs, with sufficient mix upside likely as more hubs are added.

Stock Performance

With Panera Bread’s shares having declined almost 15 percent over the past six to eight weeks, the analyst believes the current valuation presents an attractive entry point.

“Panera’s recently depressed earnings should rebound back into a double-digit range beginning in 2017 as top and bottom-line leverage improves behind both existing and pending 2.0 conversions,” Stump went on to say.

The company is also likely to continue to seek refranchising opportunities going forward, which could drive significant multiple expansion.

At last check, Panera was up 2.07 percent at $193.20.

Full ratings data available on Benzinga Pro.