AnkurMathur.com

Back in sophomore year my first IAG presentation was on the Panera Bread Company (PNRA). Our pitch didn’t get the company into the portfolio, but over the next year and half the stock price almost doubled; it went from $40.13 in October 2004 to a high of $75 in March of 2006. Since then it has come back down to almost its previous level. Since I opened my Scottrade account earlier this week, I thought I would take another look at Panera, update the Discounted Cash Flow (DCF) and see if there is anything left in it. Currently, the DCF shows an upside of almost the same amount as before, it is predicting that it will return to the high of $75.

I still like this company, I think they have room to grow, to open new stores and increase the number of franchises. I see the main bulk of the growth originating in the company owned bakeries, with some continued expansion in franchises. I’ve kept the margins constant, while they, like every other company tries to improve margins, I can’t realistically predict how they will change. I’ve also taken a slightly unrealistic approach with their tax rate, and assumed that they will pay the full 35% corporate rate; something which very few companies actually do. Overall, I think I’ve got a valuation with fairly conservative assumptions and still a significant amount of upside.

If there’s demand, I’ll post a PDF-ed version of the DCF.

Disclaimer: My comments are here for educational purposes, do not make financial decisions based on my advice only.