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Long/Short Investments in L/S Equity: Valuation and Ideas,

Projecting Out Panera’s (PNRA) Financials

Due in part to recent expansion efforts and startup initiative costs, PNRA’s margins have been shrinking for the past few years, from an EBITDA margin of 17.6% in the FY2012 to 14.0% for the FY2015.

For modeling purposes, I believe PNRA will be able to maintain a 14% EBITDA margin moving forward based on current information. After 4.4% in depreciation and amortization expenses, the company’s EBIT margin should come in around 9.6%. (I prefer to underestimate rather than overestimate D&A, as a higher estimation will actually skew cash flow estimates upward due to its status as a non-cash add-back.) The company’s tax rate is high relative to other companies, often above 35%. I keep it at 35% throughout.

For revenue, I project $2.8 billion for 2016 and 10% growth over this figure into 2017. After this point, I believe year-over-year revenue growth will begin tailing off until the company is running at about a 5% Y/Y clip for the FY2026. This would bring its top line to just shy of $6 billion, or about 2.1x over its projected 2016 figure. I estimate the company’s 2016 EPS at 6.68, or basically in line with consensus estimates and 7.35 for 2017, or toward the lower end of estimations.

PNRA is fairly capital intensive for a casual restaurant business, with capex running at around 8% of sales. I assume cash flow from operations growth at 2% per year. Graphically, the company’s EBITDA, NOPAT, free cash flow, and working capital projections come out as follows through the FY2026: