Please ensure Javascript is enabled for purposes of website accessibility

The 2 Real Keys to Panera's Rise Today

By Dan Caplinger - Apr 3, 2013 at 1:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The bakery chain got some good news from analysts, but is the stock being overhyped?

Bread wasn't the only thing rising at Panera (PNRA) today: The stock rose at the open and quickly expanded its gains to 3.5% by 12:30 p.m. EDT. Analysts at Raymond James upgraded the stock from "underperform" to "market perform," marking the second positive move this week after Deutsche Bank analysts added the bakery chain to its short-term buy list on Monday.

Panera has done a good job of following the trend toward healthier eating options, with numerous reviews citing it as the healthiest option for fast food in America. Even as many restaurant chains have had to cut back on their menu offerings due to high input costs, Panera has expanded its menu, incorporating pasta in order to appeal to its high-end customer base. Even fellow health-focused chain Chipotle Mexican Grill (NYSE: CMG) hasn't been able to duplicate Panera's success in keeping a lid on its food expenses, as Panera's decision to keep bread-dough production in-house has produced big rewards. By maintaining an emphasis on premium quality, Panera is able to avoid the margin-destroying moves that weaker competitors have had to make.

In many ways, Panera has learned its lessons from coffeehouse giant Starbucks (SBUX 2.98%). Like Starbucks, Panera has worked hard to make its restaurants inviting with Wi-Fi service and a comfortable setting encouraging customers to treat each Panera location as a second home. Panera has also reached out to the communities it serves with initiatives like the Panera Cares pay-what-you-can locations for needy people seeking food.

What's really supporting Panera's stock?
As easy as it is to point to analyst upgrades as a reason for prices to make short-term moves, Panera's success over the long run depends on two key factors: its ability to keep giving its customers the products and dining experience they want and customers' willingness and capacity to keep rewarding a much-loved restaurant chain with their business. Positive signs on both fronts have been evident for a while now: Growing same-store sales, more productive per-store weekly sales, and ambitious expansion plans all point to favorable prospects for Panera. As long as the company keeps seeing such good results, today's pop in Panera stock will be just the tip of the iceberg for long-term investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Panera Bread Company Stock Quote
Panera Bread Company
PNRA
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$76.71 (2.98%) $2.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
356%
 
S&P 500 Returns
124%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.