Quest Diagnostics Inc (DGX), Panera Bread Co (PNRA): Thursday’s Top Upgrades (and Downgrades)

Priced at 18 times earnings today, but only 11 times free cash flow, Quest Diagnostics Inc (NYSE:DGX) shares are bargain-priced for analyst expectations of 12% annualized earnings growth over the next five years. Throw in a modest 2% dividend yield, and the stock’s undervaluation only becomes more apparent.

Although I admit to having some reservations over Quest Diagnostics Inc (NYSE:DGX)’s $3.5 billion debt load, on balance, I think the shares are attractive — certainly more attractive than Tesla.

Panera Bread Co (NASDAQ:PNRA): Stale, or a steal?
I wish I could say the same about today’s other upgrade, but I can’t. Early this morning, Wunderlich Securities announced that it is upgrading Panera Bread Co (NASDAQ:PNRA) shares from “hold” to “buy” and assigning a $212 price target. Problem is, Panera Bread Co (NASDAQ:PNRA) shares are already overvalued at $175 — much less $212.

Panera Bread Co (NASDAQ:PNRA)’s share price today values the company at 27.5 times earnings. Although it’s true that analysts expect Panera Bread Co (NASDAQ:PNRA) to grow earnings in excess of 17% per year over the next five years, 27.5 times earnings is still a pretty high price to pay for that growth rate — a price that may even be higher than it seems, given that over the past year, Panera Bread Co (NASDAQ:PNRA) has really only generated about $121 million in free cash flow — $0.65 in actual cash profits for every $1 that the company claims to have “earned” under GAAP accounting standards.

Long story short, I think Wunderlich is giving too much credence to Panera’s GAAP profits, and not paying enough attention to the company’s (lack of) cash profits. Honestly, this is one stock I’d be more inclined to sell than to buy.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Panera Bread, Quest Diagnostics, and Tesla Motors (NASDAQ:TSLA). The Motley Fool owns shares of Panera Bread and Tesla Motors.

The article Thursday’s Top Upgrades (and Downgrades) originally appeared on Fool.com is written by Rich Smith.

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