Analyst cuts rating for Panera Bread to 'Neutral'

Analyst lowers Panera rating, says happy earnings surprises unlikely in the short term

Associated Press

NEW YORK (AP) -- An analyst lowered his rating for Panera on Friday, saying it seems unlikely the sandwich-and-salad restaurant chain will report earnings topping Wall Street expectations.

Fast-casual chains like Panera Bread Co. and Chipotle Mexican Grill have been gaining in popularity in the U.S. and are seen as a step up from traditional fast-food chains. But tougher competition may be catching up with the sector, as Panera's first-quarter earnings missed Wall Street's expectations — with fewer people stopping by its restaurants.

Matthew DiFrisco of Lazard Capital Markets said in a client note that Panera is seeing the growth of its catering business slow, which could mean there's limited demand for the service. The analyst said that catering makes up almost 8 percent of company-owned stores' sales.

DiFrisco said that Panera may be a bit optimistic on its second quarter, as it faces tougher comparisons — particularly for average check, as last year's quarter was helped by a turkey and avocado sandwich, meal upgrade program and 20 percent rise in catering.

But beyond 2014, DiFrisco thinks reduced spending and moderating wheat costs should help to sustain earnings per share growth of 15 percent or more.

The analyst cut Panera's rating to "Neutral" from "Buy."

The company's stock declined $1.04 to $192.79 in midday trading.

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