Panera Gets Pounded

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Today's action on Panera BreadCompany (Nasdaq: PNRA) provides a bread-making analogy that's almost too cute to use. Although quarterly results reveal that the company's dough is rising nicely, the stock was pounded back (9% this morning). But, like a well-made loaf, it should eventually find its equilibrium.

First, the horrible news: Panera's Q4 earnings were up 36% to $0.34 per share, and for the year the bottom line inflated 37% (after an accounting change that led to a penny charge) to $1.00 per stub. What's so horrible about that? Nothing, really. But the street has a way of pouting when its hopes are bruised, and Panera management gave shareholders a few excuses for teary eyes and quivering bottom lips.

The earnings increase paled in comparison to last year's 59% jump. And 2003 comps were flattish, up only 0.2%. That's not great, with peers like Yum! Brands (NYSE: YUM), Wendy's (NYSE: WEN), and McDonald's (NYSE: MCD) posting recent comps upticks from single to double digits. But it's not bad either, especially with Atkins-crazed consumers avoiding bread like Superman shuns Kryptonite. It does mean that Panera's revenue and earnings growth will rely more heavily on new locations. The company plans to open approximately 150 new stores in '04.

As for today's free fall, the drop that started the deluge seems to have been revised 2004 earnings guidance, lowered to $1.29 per share, a reduction of (gasp!) a couple of pennies from what analysts had been forecasting.

But perhaps the real culprit is the stock's own success. At $40, it has provided a solid gain from around $26 this time last year. Today, the stock trades about 31 times forward earnings estimates that predict about 30% growth. There are worse deals out there.

Panera's not cheap, but with solid execution on flat sales and plenty of room left to expand, it's too early for stockholders to race for the exits. If you've had your eye on the company, the next couple of days may offer you the sale price you've been wanting.

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Motley Fool contributor Seth Jayson -- who does not own any of the companies mentioned in this article -- is too lazy to make bread by hand these days, but he recommends the bread machine to anyone unfortunate enough to sit next to him on the bus.