Panera shares up following Goldman Sachs upgrade

Panera Bread Co. shares rose Thursday after a Goldman Sachs analyst upgraded his rating on the restaurant chain's stock based on improving consumer demand.

THE SPARK: Analyst Michael Kelter said that based on his firm's survey, consumers are more optimistic and willing to spend, especially those in high-income households. He upgraded his rating on Panera to "Buy" from "Neutral," noting that the company's margins are improving, its number of stores is growing and sales are solid. The stock was also added to Goldman's "Americas Conviction List," of top picks.

THE BIG PICTURE: The St. Louis-based chain owns and franchises more than 1,600 bakery-cafes nationwide. Panera reported in February that its fourth-quarter profit increased 34 percent. Revenue in restaurants open at least a year, a key retail metric that strips out the skewing effect of new and closed stores, rose 5.1 percent in locations Panera owns and 4.7 percent in franchised cafes.

Thursday's upgrade follows an upgrade by a Raymond James analyst on Wednesday, which pointed to falling prices for ingredients and a return to more normal consumer demand levels in recent weeks after a slump in February.

THE ANALYSIS: Kelter said a new ad campaign and new products may serve as a catalyst for growth after a period of underperformance. He also expects traffic in stores will improve in the spring and will benefit by comparison to a slower prior year. He raised his price target on the stock to $215 from $185.

SHARE ACTION: Panera's stock price increased $6.36, or nearly 4 percent, to $175.86 in midday trading. Its stock value has increased about 11 percent in the year to date.