Panera and Chipotle Stocks Take a Fall
Fast-casual chains may be resilient, but they are not immune to economic woes.
By David Farkas, Senior Editor -- Chain Leader, 9/17/2008 3:56:00 PM
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| Panera Bread Co.'s stock tumbled 13 percent afer Morgan Keegan downgraded it to "market perform." |
Last Friday, Morgan Keegan's downgrade to "market perform" sent Panera Bread Co.'s share price tumbling. At end of the day, a share of PNRA was changing hands at $47.55, down almost 13 percent.
Morgan Keegan analysts noted that "strong [same-store sales] and operating margin trends at [PNRA] had led to significant stock price appreciation." In short, Panera was already "fairly valued."
Never mind. By Monday PNRA shares were wending their way back, buoyed by company officials who reiterated third-quarter earnings targets of 42 cents to 44 cents. On Tuesday afternoon, the share price was $51.94, up 5 percent.
Piper Jaffray analyst Nicole Miller Regan predicts the price will rise to $62 a share, or 24 times her fiscal '09 earnings estimate.
The Richer, the Better
Investor confidence in fast-casual chains like Richmond Heights, Mo.-based Panera Bread Co. appears warranted in some cases. A recent online survey of 2,000 adults conducted by Chicago-based research firm Mintel shows such chains remain attractive to higher-income consumers despite a difficult economy.
"While both fast-casual and quick-service restaurants rely heavily on convenience to draw-and keep-customers, fast-casual usage skews more dramatically to higher [household] income users," the researchers say. Younger (under 35) and wealthier (income above $75,000) consumers are also more likely to visit fast-casual restaurants than the average consumer, the report adds.
Expected Plunge
Affluent customers, however, were not enough to keep shares of Chipotle Mexican Grill (CMG) from sinking 20 percent last week on news that the consumer pullback and rising costs would hurt third-quarter sales and profits.
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| Shares of Chipotle Mexican Grill sank 20 percent last week on news that the consumer pullback and rising costs would hurt third-quarter sales and profits. |
While the recent decline in CMG was steep, it wasn't unexpected. Since Jan. 2, when a share changed hands for $147, the stock has lost 61 percent of its value. At Tuesday's close a share was worth $57.19. As a result, Miller Regan trimmed CMG's target price to $65 from $133.
The decline notwithstanding, some investors remained bullish, seeing the cheaper shares as an opportunity to buy. CMG's Class B common shares, for example, earned a "five-star ranking" from Motley Fool.
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