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Pro Analysis

Breakingviews: Surge in red-hot Panera shares makes a takeover too rich for suitors

Source: Panera Bread

The primary risk from the ghastly sport of competitive eating is indigestion. So, too, may it be in the race to consolidate America's restaurant industry. Panera Bread is the latest chain to whet the appetites of investors, following a report Monday that it received a takeover approach. New mobile-ordering and delivery services have leavened the bakery-café chain's growth rate, which could interest potential bidders. But a price as rich as its pecan rolls will limit the queue of suitors.

Long seen as the poor cousin of Starbucks, $6.6 billion Panera has found ways of improving its fast-casual dining recipe with technology. Panera has been rolling out kiosks that enable customers to avoid lines and order and pay for food digitally. It's also introducing delivery service and ramping up a loyalty program that boasts 25 million users. Such initiatives, combined with moves to make its menu healthier, helped boost comparable-store sales at company-owned outlets by 4.2 percent in 2016. It's forecasting similar growth this year.

Much of this good news is baked into Panera's price. The stock has gained 70 percent over the past two years and now fetches 32 times forecast earnings for 2017, frothier even than the 27 times Starbucks commands. Panera has little debt, but its enterprise value of just over 15 times EBITDA would stretch any suitor looking to do a debt-financed deal.