Morningstar

Panera's an Attractive Takeover Candidate

An acquirer would probably be attracted to the narrow-moat company's industry-leading loyalty program engagement and digital sales penetration, expanding delivery capabilities, a growing at-home business, and a potential refranchising/leveraged recap play.

Shares of narrow-moat

In addition, there has been an uptick in industry M&A activity the past two months, including Restaurant Brands' $1.8 billion acquisition of Popeyes, Darden's proposed $780 million acquisition of Cheddar's, and a spate of private equity transactions. An April 3 Bloomberg article cited JAB Holdings (the parent company of Peet's, Caribou, Einstein Noah, and Keurig), Starbucks, and Domino's as potential bidders, though there could be additional interest from multibrand restaurant franchise operators like Yum Brands or Restaurant Brands or a restaurant-focused private equity firm, many of which have been engaged in fundraising in recent months.

There is no change to our $260 fair value estimate based on these rumors; our valuation is based strictly on Panera's longer-term stand-alone cash flow, including average top-line growth of 7% and operating margins expanding to around 16%-17% over the next 10 years. That said, we would not be surprised to see M&A speculation keep the stock ahead of our fair value estimate for the foreseeable future.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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