Why Panera Bread (PNRA) Stock Is Sliding on Wednesday

NEW YORK (TheStreet) -- Panera Bread (PNRA) is slipping on Wednesday after management declined to provide earnings guidance beyond the end of the year.

By midday, shares had taken off 7.5% to $171.84. Trading volume of 1.4 million was more than double its three-month daily average.

At its Investor Day presentation Tuesday, the bakery chain said due to the rollout of certain initiatives, including an investment in its online presence, the company could see choppy earnings growth in the near- and medium-term.

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In a statement, CEO Ron Shaich said, "As already reflected in our guidance for fiscal 2014, we anticipate that these investments may depress both margins and earnings growth in fiscal 2014 and 2015."

The St. Louis, Miss.-based business said it expects net income of $1.49 to $1.55 a share over its first quarter ending March, compared to $1.53 a share according to averages compiled by Thomson Reuters.

Over fiscal 2014, management forecasts fully-reported earnings between $6.80 and $7.05 a share. Analysts anticipate $7.08 a share.

Uncertainty beyond fiscal 2014 led analysts to review ratings. Wunderlich downgraded the stock to "hold" from "buy" and slashed its price target to $190 from $205.

Meanwhile, Deutsche Bank reiterated Panera as a "hold" but cut its 2014 EPS estimate by 2 cents to $6.81 a share.

However, UBS and Oppenheimer reiterated a "buy" and "outperform" rating, respectively, with $200 price targets. The firms remain bullish on the company's top-line growth potential, but warn of a lack of bottom-line visibility.

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TheStreet Ratings team rates PANERA BREAD CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate PANERA BREAD CO (PNRA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, growth in earnings per share, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."

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Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 15.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • PANERA BREAD CO has improved earnings per share by 12.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PANERA BREAD CO increased its bottom line by earning $6.82 versus $5.89 in the prior year. This year, the market expects an improvement in earnings ($6.95 versus $6.82).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, PANERA BREAD CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has significantly increased by 95.66% to $136.91 million when compared to the same quarter last year. In addition, PANERA BREAD CO has also vastly surpassed the industry average cash flow growth rate of -33.04%.

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