Panera Bread Looking To Build A Competitive 'Moat' On The Back Of Strong Sales

Oppenheimer expects fourth quarter EPS and comps from Panera Bread Co PNRA lower than the Street amid industry-wide slowdown in December. However, the brokerage reiterated its Outperform rating on shares on a favorable set up for 2018.

Panera will report its fourth quarter numbers on Tuesday. Analyst Brian Bittner expects company-owned comps of +2.7 percent and EPS of $1.99 versus the Street's +3.7 percent/$2.00 on sequential drop in Industry on a one- and two-year basis.

For the first quarter, Bittner models +2 percent comp vs. the Street’s +2.8 percent estimate, as the industry remains sluggish and as Panera Bread faces a difficult +6.2 percent comp lap.

The analyst expects 2017 EPS guidance to be initiated in low-double-digits versus sell-side's +14 percent and buyside's 10-13 percent.

“While ’17E EPS will remain restrained, our work implies the favorable setup for ‘18 can no longer be ignored,” Bittner wrote in a note.

In addition, Bittner projects the Street's 2018 EPS estimate for Panera to expand over 20 percent, only assuming mid-3 percent same-store sales and +50bps EBIT margin expansion and appears highly conservative.

Bittner says Panera’s strong competitive moat includes the brand’s successful head-start on digital (24 percent of sales and climbing) and delivery, which is expected to account for about 40 percent of system by end of ’17.

“[M]argins begin to recapture the ~400bps lost in the investment cycle, particularly as delivery will contain healthy margins. For sensitivity understanding, every 100bps margin delta drives 12-13% EPS growth,” Bittner added.

Moreover, the analyst noted that Panera is one of the key beneficiaries in the sector from the potential tax reforms.

Bittner reiterated his $240 price target, implying potential upside of about 11 percent from the current levels.