Panera Bread Co (NASDAQ:PNRA) stock is up about 11% since the start of the year and up about 38% over last year. PNRA stock’s recent run is largely the result of upbeat earnings that the company reported in early February. If you’re kicking yourself for not getting in on the run, know that an analyst at Morgan Stanley thinks PNRA stock could go much higher.
Morgan Stanley’s John Glass upgraded the company’s rating for Panera stock from “Equal-weight” to “Overweight,” while raising the price target from $204.00 to $250.00. With the price of PNRA stock at $215.00 at open on March 8, 2016, that implies a surge in the stock of about 16%.
So how will Panera get to $250.00 per share?
Glass is optimistic about Panera’s digital initiatives, which he believes will result in same-store sales and earnings per share (EPS) growth that will come in higher than analysts’ expectations in 2017 and beyond. (Source: “Morgan Stanley Upgrades Panera, Believes Digital Initiatives Has Bread Company Well-Positioned For 2017 And Beyond,” Benzinga, March 8, 2016.)
“After three years of investment and brand transformation, ’16 should finally represent an inflection year that should usher in a multiple-year period of escalated SSS and EPS growth as the company fully benefits from its transition to a digital access model (dubbed Panera 2.0.),” Glass noted. (Source Ibid.)
Panera 2.0 sounds like something reserved for a high-tech company, rather than one that’s core offering is bread. Let’s take a look at what it is and what it means for PNRA stock.
Two years ago, Panera Bread unveiled Panera 2.0, a series of integrated technologies meant to enhance the customer experience. It includes introducing touchscreen kiosks that can handle a high volume of customers more efficiently; counter to table delivery; advanced ordering to go placed online or through the mobile app, so customers don’t have to wait in line; and the ability to pay through the mobile app, among many other initiatives.
Panera is also investing $4.8 billion into remodeling its stores. (Source: “Here’s Why Shares of Panera Are Jumping,” Fortune, February 10, 2016; http://fortune.com/2016/02/10/panera-earnings-shares-jumping/?xid=yahoo_fortune.) Panera plans to convert about 100 stores to the Panera 2.0 system in addition to the 410 stores already operating under the system (Panera has 901 company-owned stores).
So far, the plan is paying off big for Panera. In the latest earnings call, CEO Ronald Shaich said that stores that have had Panera 2.0 for at least four quarters are seeing same-store sales growth of 7.6%. (Source: “Panera Bread (PNRA) Ronald M. Shaich on Q4 2015 Results – Earnings Call Transcript,” Seeking Alpha, February 10, 2016; http://seekingalpha.com/article/3884016-panera-bread-pnra-ronald-m-shaich-q4-2015-results-earnings-call-transcript?part=single.)
Stores that are in the fifth quarter of their conversion had an increase of 9.7% in same-store sales. (Source: Ibid.) This compares to same-store sales at all stores of 3.6%, so the new stores are having an extremely positive impact. (Source: “Panera Bread Company Reports Q4 2015 Diluted EPS of $1.88, Excluding One-Time Items,” Panera Bread Co, February 9, 2016.)
The Bottom Line on PNRA Stock
The digital initiatives under Panera 2.0 now account for about 22% of sales in the remodeled stores. (Source: Ibid Fortune.) Shaich also believes that the new initiatives will fuel the company to double-digit earnings growth next year. Investors may want to take a look at PNRA stock.