The Starbucks Corporation

2401 Utah Avenue South

Seattle Washington 98134
(206) 447-1575
The Starbucks Corporation is in the process of attempting to purchase the Panera Bread
Company through acquisition. The mentioned below information is a summary with analysis of
important key financials which are useful to determine the health of the business. It will show if
the company is making money, growing, and how much the company is worth. In fact, Panera
Bread Company (Panera), incorporated on June 2, 1988, is a food service provider. Panera is a
national bakery-cafe concept with 1,777 Company-owned and franchise-operated bakery-cafe
locations in 45 states, the District of Columbia, and Ontario, Canada. Panera operates under the
Panera Bread, Saint Louis Bread Co. and Paradise Bakery & Cafe trademark names. The
Company operates through three business segments:
1. Company bakery-cafe operations,
2. franchise operations and
3. Fresh dough and other product operations.
As of December 31, 2013, the Companys bakery-cafe operations segment consisted of 867
Company-owned bakery-cafes and 910 franchise-operated bakery-cafes, located throughout the
United States and in Ontario, Canada. As of December 31, 2013, the Companys fresh dough and

other product operations segment, which supplies fresh dough and other products daily to
Company-owned and franchise-operated bakery-cafes, consist of 22 Company-owned and two
franchise-operated fresh dough facilities, located throughout the United States and one in
Ontario, Canada.
Company bakery-cafe operations:
The Companys bakery-cafes are located in urban, suburban, strip mall and regional mall
locations. The Company offers breakfast, lunch, gathering place, dinner, and take home through
both on premise sales and off-premise Panera Catering. Panera Catering is a nation-wide catering
service that provides breakfast assortments, sandwiches, salads, soups, pasta dishes, drinks and
bakery items. Panera Catering is supported by a national sales infrastructure that includes an online ordering system. The menu items include baked bagels, breads, muffins, scones, rolls, and
sweet goods, made-to-order sandwiches, soups, salads, pasta dishes and roasted coffees and cafe
beverages, such as hot or cold espresso and cappuccino drinks and smoothies. During the fiscal
year ended December 31, 2013, the Company introduced Spinach Power Salad, Bistro French
Onion Soup, Superfruit Power Smoothie with Ginseng, Rustic Penne Bolognese, Pesto
Sacchettini, Tortellini Alfredo, Roasted Turkey & Sun-Dried Tomato Pesto Breakfast Sandwich,
cheese babka, Shrimp Salad Roll, Chilled Shrimp and Soba Noodle Salad, Parmiago Pizza
Bagel, Frozen Cherry Limeade, Rigatoni San Marzano, Vegetarian Autumn Squash Soup,
Roasted Turkey Harvest Wheatberry Salad, Fontina Grilled Cheese Sandwich, the Country Style
Mushroom with Truffle Soup, and a Signature Hot Chocolate with Chocolate Chip
Marshmallows.
Franchise Operations:
The Companys franchisees operated bakery-cafes consist of 37 franchise groups. As of
December 31, 2013, the Company had 910 franchise-operated bakery-cafes operating throughout
the United States and in Ontario, Canada. The Franchise Operations segment is consists of the
operating activities of the franchise business unit, which licenses qualified operators to conduct
business under the Panera Bread or Paradise Bakery & Cafe names and also monitors the
operations of bakery-cafes.

Fresh Dough and Other Product Operations:

The Fresh Dough and Other Product Operations segment supplies fresh dough, produce, tuna,
cream cheese and indirectly supplies sweet goods items through a contract manufacturing
arrangement, to Company-owned and franchise-operated bakery-cafes. The fresh dough is sold
to both Company-owned and franchise-operated bakery-cafes.
Is Panera's Stock Healthy?
Panera Bread (NASDAQ:PNRA) may be the healthy alternative to fast food, but will its stock
returns be as healthy? Let's dig into the investment prospects of the firm. For this, We think a
comprehensive analysis of a firm's discounted cash-flow valuation and relative valuation versus
industry peers is the best way to identify the most attractive stocks at the best time to buy. This
process culminates in what we call our Valuentum Buying Index, which ranks stocks on a scale
from 1 to 10, with 10 being the best. Valuentum followers have read the "12 Steps to Understand
the Stock Market" and believe the more investors interested in the stock, the greater likelihood
for future capital appreciation. More interest = More buying = Higher stock price. Essentially,
we're looking for firms with characteristics that overlap investment methodologies, thereby
revealing the greatest interest by investors (we like firms that fall in the center of the diagram
below).

If a company is undervalued both on a DCF and on a relative valuation basis, it scores high on
our scale. Panera Bread posts a VBI score of 6 on our scale, reflecting our "fairly valued" DCF
assessment of the firm, its neutral relative valuation versus peers, and very bullish technicals. We
compare Panera Bread to peers McDonald's (NYSE:MCD), Starbucks (SBUX) and YUM Brands
(NYSE:YUM). In the spirit of transparency, we show how our performance has stacked up
versus peers below:

Our Report on Panera Bread:

Investment Considerations:

Investment Highlights:

We like Panera's positioning as a healthier alternative to traditional fast food, and we

think the company's updated stores provide a great atmosphere to invite consumers to
trade down from casual restaurants.

Panera Bread's business quality (an evaluation of our ValueCreation and ValueRisk
ratings) ranks among the best of the firms in our coverage universe. The firm has been
generating economic value for shareholders with relatively stable operating results for the
past few years, a combination we view very positively.

Panera Bread has an excellent combination of strong free cash flow generation and low
financial leverage. We expect the firm's free cash flow margin to average about 8.4% in
coming years, and the firm had no debt as of last quarter.

Business Quality:

Economic Profit Analysis:

The best measure of a firm's ability to create value for shareholders is expressed by comparing its
return on invested capital (ROIC) with its weighted average cost of capital (OTC: WACC). The
gap or difference between ROIC and WACC is called the firm's economic profit spread. Panera
Bread's 3-year historical return on invested capital (without goodwill) is 34.5%, which is above

the estimate of its cost of capital of 10.8%. As such, we assign the firm a Value Creation rating
of EXCELLENT. In the chart below, we show the probable path of ROIC in the years ahead
based on the estimated volatility of key drivers behind the measure. The solid gray line reflects
the most likely outcome, in our opinion, and represents the scenario that results in our fair value
estimate.

Cash Flow Analysis:

Firms that generate a free cash flow margin (free cash flow divided by total revenue) above 5%
are usually considered cash cows. Panera Bread's free cash flow margin has averaged about 7.9%
during the past 3 years. As such, we think the firm's cash flow generation is relatively STRONG.
The free cash flow measure shown above is derived by taking cash flow from operations less
capital expenditures and differs from enterprise free cash flow (FCFF), which we use in deriving
our fair value estimate for the company. At Panera Bread, cash flow from operations increased
about 22% from levels registered two years ago, while capital expenditures expanded about 85%
over the same time period.
Valuation Analysis:
Our discounted cash flow model indicates that Panera Bread's shares are worth between $146.00
- $220.00 each. The margin of safety around our fair value estimate is driven by the firm's
LOWValueRisk rating, which is derived from the historical volatility of key valuation drivers.
The estimated fair value of $183 per share represents a price-to earnings (P/E) ratio of about 31.1
times last year's earnings and an implied EV/EBITDA multiple of about 13.3 times last year's
EBITDA. Our model reflects a compound annual revenue growth rate of 13.2% during the next
five years, a pace that is lower than the firm's 3-year historical compound annual growth rate of
16.3%. Our model reflects a 5-year projected average operating margin of 14.3%, which is above
Panera Bread's trailing 3-year average. Beyond year 5, we assume free cash flow will grow at an
annual rate of 5.2% for the next 15 years and 3% in perpetuity. For Panera Bread, we use a
10.8% weighted average cost of capital to discount future free cash flows.

Margin of Safety Analysis:

Our discounted cash flow process values each firm on the basis of the present value of all future
free cash flows. Although we estimate the firm's fair value at about $183 per share, every
company has a range of probable fair values that's created by the uncertainty of key valuation
drivers (like future revenue or earnings, for example). After all, if the future was known with
certainty, we wouldn't see much volatility in the markets as stocks would trade precisely at their
known fair values. Our ValueRisk rating sets the margin of safety or the fair value range we
assign to each stock. In the graph below, we show this probable range of fair values for Panera
Bread. We think the firm is attractive below $146 per share (the green line), but quite expensive
above $220 per share (the red line). The prices that fall along the yellow line, which includes our
fair value estimate, represent a reasonable valuation for the firm, in our opinion.

Future Path of Fair Value:

We estimate Panera Bread's fair value at this point in time to be about $183 per share. As time
passes, however, companies generate cash flow and pay out cash to shareholders in the form of
dividends. The chart compares the firm's current share price with the path of Panera Bread's
expected equity value per share over the next three years, assuming our long-term projections
prove accurate. The range between the resulting downside fair value and upside fair value in Year
3 represents our best estimate of the value of the firm's shares three years hence. This range of
potential outcomes is also subject to change over time, should our views on the firm's future cash
flow potential change. The expected fair value of $249 per share in Year 3 represents our existing
fair value per share of $183 increased at an annual rate of the firm's cost of equity less its
dividend yield. The upside and downside ranges are derived in the same way, but from the upper
and lower bounds of our fair value estimate range.

Pro Forma Financial Statements:

Intrinsic Value of Panera Bread Cl A (PNRA):

Panera Bread Price to Book Value: 6.048 for April 2, 2015

Starbucks has the opportunity to make its stores more profitable. Panera, on the other hand, stands to lose
market share to Starbucks if it isn't careful. However, at least for now, both companies are growing at a healthy
clip.

References:

http://www.fool.com/investing/general/2013/10/21/why-starbucks-wants-to-be-panerasbiggest-competit.
http://www.nasdaq.com/symbol/pnra#ixzz3WNK6Gqyg
http://www.nasdaq.com/symbol/pnra#ixzz3WNDG3qXG

http://www.investopedia.com/terms/s/synergy.asp#ixzz3WMIUgc2B

http://www.nasdaq.com/symbol/pnra/stock-chart#ixzz3WIGNtQRMhttp:

http:// www.nasdaq.com/

http://static.cdn-seekingalpha.com/uploads/2013/5/9/933684-1368124039896415Valuentum.png

http://www.reuters.com/finance/stocks/companyProfile?symbol=PNRA.O

https://www.panerabread.com/en-us/mypanera/find-a-panera.html