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Panera Buyout Speculation No Surprise

Panera Buyout Speculation No Surprise

Shares of narrow-moat Panera are soaring on rumors that the firm is exploring potential strategic alternatives after receiving preliminary takeover interest. While it's difficult to handicap the likelihood of a transaction it's not hard to see why a suitor would be interested. In our view, Panera is one of the restaurant operators best equipped to accommodate evolving consumer expectations regarding value, convenience, health, and technology.

In addition, there has been an uptick in industry M&A activity the past two months, including Restaurant Brands' acquisition of Popeyes, Darden's proposed acquisition of Cheddar's, and a spate of private equity transactions. An April 3 Bloomberg article cited Caribou parent JAB Holdings, Starbucks, and Domino's as potential bidders.

There is no change to our $260 fair value estimate based on these rumors; our valuation is based strictly on Panera's longer-term stand-alone cash flow.That said, we would not be surprised to see M&A speculation keep the stock ahead of our fair value estimate for the foreseeable future.

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