Analyst upgrades Panera Bread Co.

From The Associated Press

Panera Bread Co.’s ability to lock in favorable wheat prices will likely help the bakery-and-cafe chain’s earnings potential, an analyst said Friday in boosting her rating.

Piper Jaffray analyst Nicole Miller Regan upgraded the Richmond Heights, Mo., company to “Buy” from “Neutral” and raised her price target to $62 from $46. The new target implies she expects the stock to rise 19 percent over Thursday’s $52.30 close.

Prices for wheat — an essential commodity for Panera’s product line — have skyrocketed over the past year, pushing prices for everything from cereal to bread higher and harming corporate margins.

Wheat for July delivery settled Thursday at $7.854 a bushel on the Chicago Board of Trade. Each time the price for a bushel of wheat rises $1, about 7 cents is drained from Panera’s earnings, Regan said.

“Trends in current wheat commodity prices are an indicator of the direction of wheat commodity futures, which is what Panera uses to contract its wheat needs on a forward basis,” Regan said in a note to clients.

Panera will likely lock in 50 percent of its 2009 wheat needs by the second quarter of this year, she said. If the company is able to set a favorable deal, it could translate into savings of $10 million, or 20 cents per share, she said.

While the company is facing peak wheat prices on a quarterly basis of $17.25 per bushel in the second quarter from $13 per bushel in the first quarter, trends are favorable back down to an expected $13 per bushel for the back half of the year, based on wheat pricing the company has locked, she said.

For the year, Regan now expects earnings of $2.03 per share, up from a previous $1.95 per share forecast. Analysts polled by Thomson Financial expect, on average, earnings of $2.06 per share for the year.