Panera Has The Ingredients To Whip Up An Appetizing Q4

Delving into the third quarter results of Panera Bread Co PNRA, Morgan Stanley said the quarter delivered the ingredients to push shares higher despite the abounding skepticism.

Analyst John Glass believes the 34 percent company comps combined with sustained double-digit EPS for 2017 is good enough. However, investors are waiting for an acceleration in comps, as Panera 2.0 matures, and would like to see improving traffic. According to the analyst, tax and buybacks contributed to the EPS upside relative to Wall Street expectations and his estimate. This is despite comps and margins coming in mostly in line.

Morgan Stanley's Key Takeaways from Panera Bread's Q3

• 2.0 is working, going by in-line third quarter comps data and the maintenance of the average gap between the company comps and franchise comps.
• Traffic was disappointing and omnichannel entrée counts also decelerated.
• The company's 2017 guidance for sustained double-digit EPS growth and industry leading comps, though in line with buy-side expectations, was light on details.
• Restaurant margins were up in line with the firm's expectations.
• Digital utilization continued to grow and now accounts for 22 percent of sales at company-owned stores
• Delivery is now available at 20 percent of company-owned stores and has historically had a 10 percent sales lift after two quarters.

With Morgan Stanley's thesis intact, it maintained its Overweight rating and $250 price target.