Panera Bread Co (PNRA) Is Tier 1

Panera is also not immune to global economic slowdowns. A pullback in consumer spending would hurt sales of the company’s premium-priced food and beverages, as customers would probably cut back on their purchases or trade down to lower-cost competitors. But I’ve previously mentioned that Panera actually grew same-store sales during the last major recession, so while revenue growth will slow, it will probably remain positive. In addition, markets operate in cycles, and a downturn of this nature would ordinarily be followed by an economic recovery. So I’ll probably view these types of pullbacks as opportunities to add to Tier 1’s position in Panera, rather than a reason to sell.

Valuation
As with quality food, I’m willing to pay a bit of a premium for quality businesses — and Panera certainly fits the bill. But with the company trading at 24 times analysts’ earnings estimates for 2013, and with analysts expecting 19% annualized growth over the next five years, I don’t think we’re paying that much of a premium for Panera. I believe Panera deserves a higher-than-average multiple because of the power of its brand, excellent leadership, and the long runway for growth. In fact, my valuation model returns a value of more than $185 per share, and with years of profitable store count growth ahead, Panera should provide healthy returns to shareholders over the next five years.

The Foolish bottom line
Panera is an elite business that is well positioned to profit from the healthier-eating megatrend. Today, investors have the opportunity to buy shares in this outstanding founder-led growth company and profit handsomely as it continues to execute its store count expansion strategy. And 24 hours after this article is published, I will be buying shares in the Tier 1 Real-Money Portfolio.

The article Panera Is Tier 1 originally appeared on Fool.com and is written by Joe Tenebruso.

Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool’s Stock Advisor and Supernova premium service teams. You can connect with him on Twitter: @Tier1Investor. Joe has no position in any stocks mentioned.The Motley Fool recommends and owns shares of Berkshire Hathaway, Chipotle Mexican (NYSE:CMG) Grill, McDonald’s, Panera Bread, and Starbucks.

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