UBS commented on Panera Bread Co (NASDAQ: PNRA) Wednesday and maintained a Buy rating and $185 price target.
Analysts led by Keith Siegner felt that the company's refranchising remained "an underappreciated opportunity" that could drive the stock to $265.
"The company is targeting 50-150 cafés to be refranchised this year, which we estimate would lift franchise ownership to ~53-58 percent from ~50 percent currently. Long-term system targets remain at 35-50 percent company-owned," according to Siegner.
The analyst note illustrated a scenario where franchise ownership was taken to 95 percent in a transaction that could be ~8 percent accretive to the firm's above-consensus 2017 EPS estimate of $8.61.
Siegner estimated a valuation of $265, 65 percent above the current share price, based on "pro forma estimates, an increased leverage profile, and a 15x EBITDA multiple more in line with highly franchised peers."
The analysts believed the announcement of a transformation similar to Wendys Co (NASDAQ: WEN) "at its recent investor day to go to 95 percent franchised would be well received by investors and provide longer-term benefits for all stakeholders."
Siegner concluded that Panera Bread would return to "high-teens EPS growth" in 2015 and could see volatility over the next several quarters ahead of a possible announcement of a larger refranchising plan which "should support great earnings consistency and upside for shares."
Panera Bread recently traded at $162.94, up 1.8 percent.
Latest Ratings for PNRA
| Mar 2015 | Piper Jaffray | Maintains | Underweight | |
| Mar 2015 | Credit Suisse | Initiates Coverage on | Outperform | |
| Feb 2015 | Jefferies | Maintains | Hold |
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