Panera Bread, A Better Value Than Chipotle

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Includes: CMG, PNRA
by: Galileo Russell

Chipotle (NYSE:CMG) and Panera (NASDAQ:PNRA) are a new breed of fast food restaurants. The second you step in, you don't get that dirty, grimy, feeling of being in a McDonald's or Wendy's. Instead, you feel refreshed by a waft of enticing smells and warmed by a cozy, fun ambiance.

With new stores sprouting up everywhere, rising profits and climbing stock prices it's clear that this new type of restaurant will soon be the norm. Currently Chipotle has been leading the way. It has a higher market cap, higher earnings, more revenue and is up over 25% YTD. But, Panera is quickly catching up and seems to be trading at a very distinct discount from its bigger brother.

Here's a quick look at the numbers (both companies have an O/S of about 31,000,000 so all numbers are per share):

-2011 Projected Profits: PNRA $4.55, $CMG $6.80 - CMG is 49.5% higher

-2012 Projected Profits: PNRA $5.23, $CMG $8.40 - CMG is 60.6% higher

-Next 5 years per annum growth: PNRA, 17.69% CMG 20.20% - CMG is 14.1% higher

-Price Per Share: PNRA $118.84, CMG $266.41 - CMG is 124.2% higher

As shown above, Chipotle's average income/growth number is only 41% (average of the 3 statistics above) higher than Panera 's. Yet, Chipotle is trading 124.2% higher than Panera . For them to be priced in the same way, Chipotle would only be able to be trading 41% higher than Panera . This would put Panera over $185 per share, a 56% increase from today's prices.

I really like both companies and think they have excellent potential as far as long term growth, but it is clear to me that Panera is currently the cheaper option. If both stocks rise it's very conceivable for Panera to outperform Chipotle simply based on valuations. Both stocks have shown tremendous strength and momentum throughout the past year, if this continues Panera would be a solid option, that is, proved it can outperform the market.

If Panera and Chipotle can fulfill their growth expectations then their solidity as a true long term play will be intact. Although their P/E ratio's seem high, both are mid-cap companies in a huge, stable market that has room for growth. Both Panera and Chipotle have created niche business models in a Starbucks like fashion, where customers only spend $5-$10 to get a fun, classy dining experience. These factors combined with Panera's inefficient pricing compared to its big brother CMG make it the perfect, high growth, momentum stock.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PNRA over the next 72 hours.