Harmon_Lindsey_SBUX_PNRA (1)

1
Starbucks Vs. Panera Bread
SMIF Analyst Newsletter
By Lindsey Harmon
Canyon, TX 79016
Lindsey.harmon07@yahoo.com
(806)-886-8225
Running Head: AN ANALYSIS OF SBUX & PNRA Vol. 1 issue 2
The restaurant industry is projected to
grow at a steady rate, which is
promising news to potential investors.
However, the quick service restaurant
industry will likely grow at an even
faster rate in the coming quarters,
which is beneficial information for
investors considering purchasing
stock in Starbucks and Panera Bread.
Quick service restaurants are
becoming increasingly popular nation
wide, which explains the excess
growth in the quick service restaurant
sector compared to the restaurant
industry. Macroeconomic conditions
that could affect growth in the
restaurant industry are unemployment
and disposable income. If
unemployment rises, then disposable
income will fall per capita. As a
result, consumers will tend to spend
less money in the restaurant industry.
Quick service restaurants may be
slightly sheltered from a fall in
consumption. This is because quick
service restaurants are a combination
of fast food and full service
restaurants and tend to be less costly
than full service restaurants. This is
excellent news to potential investors
in Starbucks and Panera Brea because
it implies both companies will be
defensive in an ailing economy.
Demand is the largest industry threat
for Starbucks and Panera Bread. This
is because the restaurant industry is
highly competitive, and consumers
have a large selection, which can
make it more difficult for one specific
Executive Summary
Table of Contents
Macroeconomic analysis
Pg. 21
4
2
3
5
6
Fundamental Valuation
Pg. 5
Corporate Governance
Pg. 6-7
Next Product or Trend
Pg. 8
Technical Valuation
Pg. 9
7 References
Pg. 10
Industry Analysis
Pg. 3-4
firm to excel. Starbucks is expected to
do exceedingly well in the
international markets in the coming
quarters. One can attribute this to the
growth in quick service restaurant
consumption in the emerging
economies. Starbucks and Panera
Bread participate in a monopolistic
market structure of a highly
competitive nature, leaving opportunity
to set prices minimal. Both firms have
steadily increased sells within the past
few years, which is a promising
indication to investors about the
profitability of the firm. Starbucks has
increased earnings per share since
2011, which is a positive sign for
potential investors. Panera Bread’s
earnings per share have decreased
since 2013. This is a negative sign for
potential investors because it indicates
that investor’s returns are decreasing.
Panera Bread’s earnings per share
decrease may be attributable to the fact
that they are not paying dividends,
implying a stage of growth. This does
not make Panera Bread an unprofitable
investment; investors will still earn a
return from price appreciation.
Starbucks’ P/E ratio has steadily
increased for the past five years, and
Panera Bread’s P/E ratio has decreased.
This means people are willing to pay
more for Starbucks' stock than Panera
Bread. Investors preferring growth
(price appreciation) to income
(dividends) are better suited for
purchasing shares of Panera Bread.
Starbucks provides both price
appreciation and income.
Starbucks has a required rate of
return of 9.15% and a holding
period return of 3.8, thus the
stock is overvalued. Panera Bread
has a required return of 8.8% and
a holding period return of 2.92%,
which means the stock is
overvalued An overvalued stock
means that the price is high
relative to the market. This may
be because investors are bidding
the price up because they see
these companies as profitable
investments. For one to consider
both stocks a buy, it is necessary
for the holding period return to
exceed the required return.
However, both stocks future
prices are in between their buy
and sell range. Because of this,
both Panera Bread can both be
considered a buy (Value Line,
2015; Morningstar, 2015; Wikinvest,
2015).

2
AN ANALYSIS OF SBUX & PNRA Vol. 1 Issue 2
Macroeconomic
Variables effect on the
restaurant industry
The economy is a relatively volatile
financial system. Starbucks and
Panera Bread experience a volatility
in demand when there is a downturn
in the economy. The economy of a
country is very difficult to predict
because it is such a multifaceted
system, and because there are many
economic variables to consider.
Economic variables that specifically
influence Starbucks and Panera
Bread are consumption,
unemployment, and disposable
income. In a failing economy,
unemployment tends to be high, and
patterns show consumers will find
areas where they can cut spending.
This is because they are less likely
to have excess money
(disposable income) to spend on
non-essential items. This is where
Starbucks and Panera Bread may
suffer. On the other hand, if there is
an economic boom, consumers will
have excess money (disposable
income) to spend on non-essential
items.
Unemployment impact on
SBUX and PNRA
The main economic variable that
influences the restaurant industry,
and more specifically Starbucks and
Panera Bread, is disposable income.
When the unemployment rate is
high, consumers have less money to
spend, which causes them to cut
spending on non-essential items
(Starbucks and Panera Bread). This
causes sales to decrease. This will
ultimately lead the firms into a
decrease in profits. On the other
Macroeconomic Analysis
hand, if unemployment is low
consumers have more money to
spend, and this results in increasing
spending on non-essential goods
such as Starbucks and Panera Bread.
This will cause sales to increase
ultimately leading the firms into an
increase in profits. The data
provided in figure 2.1 is from Ibis
World. As figure 2.1 shows, as
household income falls from
$70,000 and above to $50,000-
$70,000 away from home food
consumption falls by nearly by
nearly 40 percent. This pattern
continues. As one can see, as yearly
income falls, away-from home food
consumption falls dramatically.
Fortunately, Starbucks and Panera
Bread are slightly sheltered from the
fall in consumption because of
disposable income decreases. This is
because both restaurants are a
combination of fast food and full
service restaurants. The quick
service restaurant industry tends to
be more defensive in an ailing
economy than full service
restaurants. One can attribute this to
their tendency to be less costly than
Household
income
($ ‘000)
Away-from
home food ($)
Per
Capita
($)
Proportion of
total (%)
70 plus 4,328 1,396 50.5
50 to 70 2,834 945 43.7
40 to 50 2,401 889 43.3
30 to 40 1,979 792 40.9
20 to 30 1,574 645 38.0
15 to 20 1,253 570 35.6
Away From Home Food Spending Per Income Threshold
Figure 2.1
full service restaurants, while still
yielding the same quality of
service.
Louis Kane and Ron Shaich built
the first Panera Bread in 1981 in
Boston, Massachusetts. (Kowitt,
2012).
(Harrison, 2014).
(Ibis World, 2014).

3
Industry Analysis
In 1971 Jerry Baldwin (top
picture), Gordon Bowker
(middle picture), and Zev
Siegl (bottom picture)
founded Starbucks in Seattle,
Washington.
(Gocoffeego, 2015; Allison,
2008; Sigel, 2015).
Industry Analysis Overview
The industry analysis provides details
describing the current state of the industry
by providing current stock prices,
industry threats, and financials. How do
the international markets influence the
industry and the stocks in question? Do
the firms have the ability to control
prices, or is it a highly competitive
industry leaving the opportunity to
control prices minimal? The industry
analysis also provides a five-year trend on
sales, earnings per share (EPS), net profit
margin (NPM), return on capital, long
term debt, P/E, the dividend yield, and
payout. This provides the viewer insight
about how the company is doing relative
to previous years. Comparing each stock
with other stocks in the industry shows
the reader whether the stock in question is
more or less successful than competitors.
Industry Threats
The restaurant industry is highly
competitive. This is what makes the
largest threats in the restaurant industry
competitors, consumer preference,
supply, and relative prices. According to
the Starbucks SWOT analysis, Starbucks
main competitors are quick service
restaurants and other businesses in the
coffee beverage market (i.e. Panera
Bread). Starbucks SWOT analysis also
states a concern for potential investors in
this industry could be the “extremely high
competition causing the businesses to cut
prices to loot business from competitors,
which could potentially cause downward
pressure on the market share of
Starbucks” (SBUX SWOT analysis,
2014). A threat that is specific to Panera
Bread is supply. According to Wikinvest,
Panera Bread generates 7.5% of
revenue from their fresh dough
operations. If there is a
complication with fresh dough
deliveries (supply), then it could
substantially harm Panera Bread’s
revenue (John Tan, Lawrence Gu,
Andrei Popovici, 2014)
International Markets
International markets have
massive influence on Starbucks’
profits, but international markets
have less of an influence on
Panera Bread profits. According
to SWOT analysis, Starbucks is
operating in 65 countries
including the United States.
Emerging markets are generating
substantial portions of Starbucks’
profits. The reason for this is that
there is a high level of growth in
quick restaurant consumption in
the emerging economies, and one
can expect this pattern to
continue for the next five years.
This may benefit Starbucks as it
continues to expand into the
global markets (SBUX SWOT
analysis, 2014; IBIS World,
2015).
Market Structure
Panera Bread and Starbucks are
both competing in a monopolistic
form of market. The competition
is extremely high, barriers to
entry are low, and products are
slightly differentiated. This leaves
ability to control prices minimal.

4
Industry analysis continued
Five-Year Trends
Figure 4.1 shows Starbucks and
Panera Bread’s five-year trend on
sales. Both company’s sales have
steadily increased over the last five
years. Panera Bread’s five-year trend
on sales depicts the increase in
revenue per shares outstanding, and
Starbucks five-year trend on sales
depicts the increase in sales per shares
outstanding. This information
provides the reader a sense of whether
or not the company is steadily
profitable. One can gather from figure
4.1 that both companies have been
increasing sales steadily, which is a
promising sign about the firm’s
profitability.
Panera Bread’s five-year trend on
earnings per share. Starbucks’
earnings per share have steadily
increased by around .13-.24 cents
each year. This is a positive sign
for investors because it implies their
return is increasing, which means
that Starbucks is profitable. Panera
Bread’s earnings per share increased
from 2011 to 2013 The earnings then
started deteriorating in 2014 and have
continued to decrease. Earnings per
share have decreased a total of .53
cents from the peak in 2013 of an EPS
of 6.68 to the low in 2015 of 6.15.
This is a negative sign for potential
investors because it implies their return
is decreasing. Based on the trend, both
companies are effectively turning
assets into sales. However, the trend is
becoming less favorable for Panera
Bread. This means that since 2014
Starbucks has done a better job at
turning assets into sales.
Sales SBUX PNRA
2015 12.85 107.80
2014 10.97 94.29
2013 9.89 86.19
2012 8.87 71.96
2011 7.85 61.45
Figure 4.1 (Valueline, 2015).
EPS SBUX PNRA
2015 1.60 6.15
2014 1.36 6.53
2013 1.13 6.68
2012 .90 5.89
2011 .76 4.65
NPM SBUX PNRA
2015 12.4% 5.8%
2014 12.6% 7%
2013 11.6% 8.1%
2012 10.4% 8.1%
2011 10% 7.6%
Figure 4.3 (Value line, 2015).
Panera Bread’s net profit margin
(NPM) for the last five years. Net
profit margin provides information
about how much the firm makes
after factoring in expenses and
provides insight about how
profitable the firm is (wiki invest
n.d.). Starbucks’ NPM has steadily
increased from 2011 to 2014.
However, the NPM has decreased
by 0.2% from 2014-2015. Overall,
the NPM of Starbucks implies
profitability for the firm. Panera
Bread’s NPM increased from 2011
to 2013 but has steadily declined
since 2013. This is not a good sign
about the profitability of the firm.
Based on this data, Starbucks
P/E SBUX PNRA
2014 27.9 25
2013 26.5 25.8
2012 27.5 26.4
2011 22.8 25.7
2010 18.7 22.8
Trend: 24.7 Trend: 25.1
The P/E ratio compares the price of the
stock to the earnings (current stock
price/EPS). Starbucks’ P/E ratio has
increased steadily over the last five
years. A lower EPS of a stock will
result in a lower P/E ratio, which is why
Panera Bread’s P/E ratio is lower than
Starbucks. This is because a company's
earnings in addition to other things such
as dividends affect a firm’s stock price.
A company with higher earnings will
result in a higher stock price, and this
will result in a higher P/E ratio. On
average, the market is willing to pay
more for $1 of Panera Bread's earnings.
However, one could expect this trend to
change. For the past three years, the
market is willing to pay more for the
right to $1 of Starbucks' earnings.
Payout SBUX
2015 40%
2014 38%
2013 37%
2012 33%
2011 17%
Figure 4.5 (Value line,
2015).
Trend: 11.4 Trend:7.3
Trend: 33%
Figure 4.2 (Valueline,2015).
Figure 4.4 (Valueline, 2015).
produces at a lower cost and will be able
to withstand imperfect economic
conditions better than Panera Bread.

5
Required Rate of Return
The beta of the firm influences the
required rate of return by the
investor. The beta compares the risk
of the firms’ stock to the risk of the
market. The required rate of return
is the return the investor requires
factoring in the risk of the stock.
Therefore, a beta with a higher
required rate ofreturn of 8.8%.
Starbucks has a beta of .95 and
has a required rate of return of
9.15%. Starbucks’ required rate
of return is higher than Panera
Bread’s required rate of return
because Starbucks has a higher
beta than Panera Bread.
value must then result in a higher
required rate of return. For an
investment to be profitable it must yield
the required rate of return. Adding the
risk free rate of the market to the beta
of the firm and then multiplying the
historical risk premium derives the
required rate of return. Panera Bread
has a beta of .90. This indicates it is
less risky than the market and has a
Figure 4.5 and 5.1 shows
Starbucks’ five-year trend on
dividend yield and payout ratio.
Starbucks has provided a steady
return of 1.45% for the past three
years, with an average of 1.34%.
Starbucks payout ratio has
increased steadily over the last four
years and currently pays 40% of
total earnings to shareholders.
These are both positive signs, and
imply the firm is profitable and
will provide a steady return to
shareholders. Panera Bread does
not pay dividends, which is why
figures 4.5 and 5.1 do not present
data that pertains to them.
Dividend
Yield SBUX
2015
2014
2013
2012
ROC SBUX PNRA
2015 29% 15%
2014 28.3% 21.2%
2013 23.2% 22.5%
2012 24.7% 21.1%
2011 24.1% 21.2%
Figure 5.2 shows the return on capital
by Starbucks and Panera Bread. It
provides information about how well
the firm is at turning their assets into
profit (Wikinvest, n.d.). Starbucks
ROC has steadily increased, with
exception to 2013 where it decreased
by 1.5%. Between 2011 and 2015, total
return on capital has increased by
4.9%. This is a positive sign to
investors. This increase shows the
firms ability to turn their investments
into profit for the firm. Panera Bread’s
ROC has declined steadily since 2011,
resulting in a total decrease in ROC of
6.2%. This is not a positive sign for
because it shows the firm is not
increasing profitability.
Industry Analysis Continued (2)
LTD SBUX PNRA
2015 2350 400
2014 2048.3 100
2013 1299.4 -
2012 549.6 -
2011 549.5 -
Figure 5.3 shows the long-
term debt of Starbucks and
Panera Bread. LTD is a way to
measure the liquidity of a
company. Starbucks LTD has
steadily increased from 2011
to 2015. Panera Bread had no
long-term debt from 2011 to
2013, but in 2014 the
company started accumulating
LTD.
Figure 5.3 (Value line, 2015).Trend: 1.34%
4%
1.4%
1.4%
1.5%
1%2011

6
Starbucks Figure 6.1 Panera Bread Figure 6.2
Sensitivi
ty
If P/E is If EPS is
20% less 10% less
As
expected
10%
more
20%
more
20% less -9.811% -6.410% -3.239% -0.263% 2.545%
10% less -6.410% -2.857% 0.453% 3.559% 6.488%
As
expected -3.239% 0.453% 3.893% 7.118% 10.160%
10%
more -0.263% 3.559% 7.118% 10.455% 13.602%
20%
more 2.545% 6.488% 10.160% 13.602% 16.847%
HPR 1.1214
Overvalued
Annual
Return
.0389
Alpha -.0526 Overvalued
HPR .9150
Overvalued
Annual Return -.0292
Alpha -.1172 Overvalued
Sensitivity
If P/E is
If EPS
is
20%
less
10%
less
Asexpecte
d
10%
more
20%
more
20% less
-
16.338%
-
12.988% -9.878%
-
6.968%
-
4.231%
10% less
-
12.988% -9.504% -6.269%
-
3.243%
-
0.396%
As
expected -9.878% -6.269% -2.919% 0.215% 3.164%
10%
more -6.968% -3.243% 0.215% 3.450% 6.495%
20%
more -4.231% -0.396% 3.164% 6.495% 9.629%
Dividend Growth Model
Future P = Fut
Div/Div Yld 69.5257
Present Value 53.4656
Overvalued
Figure 6.1 shows Starbucks’ HPR, annual return, alpha,
and sensitivity analysis. If a company’s holding period
return is lower than their required rate of return, then the
company is undervalued. If a company’s holding period
return is greater than the required rate of return, then the
company is undervalued. Starbucks required rate of return
of 9.15% is greater than the holding period return of
3.8%, which means Starbucks is overvalued. Starbucks
has an alpha of -.0526. This is an undesirable
characteristic. A high alpha is better than a low alpha.
One can define the holding period return as the return an
investor receives factoring for the time money is foregone
and dividends received. Thus, dividends affect the holding
period return of a stock. If there are no dividends, then the
HPR will be lower. Gordon’s Model is the constant
growth dividend discount model. Gordon’s Model
undervalues Starbucks’ stock. This is because the Gordon
Model typically values dividend-paying stocks high and
will value firms who do not pay dividends low. While
Gordon’s Model undervalues Starbucks’ stock, the
Dividend Growth Model overvalues the stock. This is
because the current price from the dividend model is less
than the actual current price. The price of Starbucks’
stock is $62.2938. Starbuck's stock is a buy at $44.80, and
a sell at $86.40 (Morningstar, 2015). Hence, Starbucks'
stock isovervalued and a buy. Figure 6.2 shows the data
for Panera Bread. Panera Bread's required rate of return of
8.8% is above the HPR of 2.9%, thus the stock is
overvalued. The alpha is negative and considered to be
overvalued. This is undesirable. Panera bread is currently
not paying dividends, which is why there is no dividend
growth data. Panera Bread’s future stock price is
$175.2174. Panera Bread’s stock is a buy at $147, and the
stock is a sell at $283.50 (Morningstar, 2015). The
sensitivity analysis analyzes the holding period return
while altering the P/E ratio and EPS. Sensitivity analysis
is a measure of how sensitive a stock is to changes in P/E
and EPS. A stock that is less sensitive is more desirable. If
Starbucks' P/E ratio is not growing greater than 10% and
EPS is not growing greater than expected, then investors
will not earn the required rate of return. If Panera Bread's
EPS and P/E are not both growing by greater than 10%,
then the investors will not earn the required rate of return.
One can gather that Starbucksis less sensitive to changes
in EPS and that when Starbucks P/E falls 20% and EPS is
as expected HPRis most negatively affected, but will only
fall 3.239%. While at Panera Bread’s worst it will fall
9.878%. If the HPR is still greater than the required rate of
return then the stock is a buy. In conclusion, Starbucks’
stock is a better buy than Panera Bread based on the
sensitivity analysis because the stock is less sensitive to
downturns in the economy. Also, Starbuck's holding
period return falls less when the firm is most negatively
affected than the amount Panera Bread's HPR falls when
the firm is most negatively affected.
Gordon's Model
Current P = D1/(k - g) -12.5812
Undervalue

7
Corporate Citizenship considerations
Starbucks (figure 7.1)
(Valueline, 2015).
Institutional Decisions
4Q2014 1Q2015 2Q2015
To Buy 588 582 544
To Sell 390 482 548
Hld's(000)109841210822981062439
Insider Decisions
D J F M A M J J A
To Buy 0 0 0 0 0 0 0 0 0
Options 3 3 1 2 1 1 1 1 3
To Sell 3 3 1 2 1 1 1 1 3
Institutional Decisions
4Q20141Q20152Q2015
To Buy 151 172 162
To Sell 134 139 149
Hld's(000) 24403 24723 24092
Insider Decisions
D J F M A M J J A
to Buy 0 0 0 0 0 0 0 0 0
Options 1 0 0 0 0 0 0 0 2
to Sell 2 0 0 1 0 0 1 2 7
Information about
institutional and insider
decisions provides the reader
knowledge about how the
insiders expect the stock to
perform in the future. If
insiders are buying stock,
then the investors can assume
the stock is undervalued (a
buy). If the insiders are
selling the stock, then the
stock is assumed to be
overvalued (a sell). Insiders
represent people with
privileged information
working within the company.
Institutional investors
typically are in ownership of
a substantial amount of a
company’s stock. Therefore,
when they decide buy or sell
it is an enormous determinant
on the future price of a stock
(Investopedia, 2015). Value
line provided the following
tables.
Figure 7.1 represents the
institutional decisions and
insider decisions of
Starbucks. Starbucks’ insider
decisions show that insiders
are not buying. Instead,
insiders are selling.
According to Nasdaq, within
the last twelve months there
have been 45 sells and 14
buys. Nasdaq’s three-month
studies show there have only
been five sells, and zero buys
(Nasdaq, 2015). Insider
investors tend to be selling
when stock prices are around
$54-56. Whether the insiders are
selling because they view the
stock as overvalued, or if they
are selling for other reasons is up
for the potential investor to
decide. An insider selling stocks
does not necessarily mean that
there will be a negative trend in
Starbucks coming quarters
(Investopedia, 2014). Figure 1.1
also shows Starbucks’
institutional decisions. The
institutional decision section
shows decisions to buy and sell
have been close from quarter to
quarter, but the 2nd
quarter
shows decisions to sell outrank
decisions to buy. According to
Nasdaq, institutional ownership
holdings represent 71.41%
between 1,263 investors holding
$1,060,505,044 with a total
value of $65,708,892,526
(Nasdaq, 2014).
Figure 7.2 represents the
institutional decisions and the
insider decisions of Panera
Bread. Panera Bread’s insider
decisions show that insiders are
not buying stock. Instead, they
are selling the stock. According
to Nasdaq, within the last 12
months there have been 105 sells
and 52 buys, however within the
last three months there have
been 63 sells and 0 buys. Insider
investors tend to sell when stock
prices are around $179-$181.
Figure 2.2 also shows Panera
Bread’s institutional decisions.
The institutional decision section shows
the investors’ decision to buy outweighs
their option to sell. In addition, the
previous two quarters were no
exception. According to Nasdaq,
institutional ownership holdings
represent 101.74% with a total value of
$4,286 million.
Panera Bread Figure 7.2
(Valueline, 2015).

8
With new seasons, coffee
companies often offer different
coffee selections. For years, in
the fall one of these options is
the pumpkin spice flavor.
According to The Street, Panera
Bread and Starbucks are
currently in a “pumpkin spice”
competition rivaling in who can
make the healthier, more
flavorful, and most preferred
pumpkin spice flavored coffee
(Sozzi, 2015).
Next Product or Trend
Consumer preferences are constantly
evolving. If businesses do not evolve
their products with the preferences of
consumers, then this could
significantly affect profits. In recent
years, consumers have started to
make more health conscious choices
when eating at quick service
restaurants. As a result, both
Starbucks and Panera Bread have
started making changes by providing
healthier options to consumers.
Changes made by Starbucks to be a
healthier option for consumers are:
removing cochineal (bug) extract for
dye, removing red food dye, offering
healthier foods for breakfast and
lunch, and healthy juices and
smoothies. According to CNN,
Starbucks has recently made a change
to remove bug extract as a dying
mechanism due to consumer
preference (Smith, 2012). According
to US magazine, Starbucks has
recently started selling flavored kale
smoothies as another healthy option
for consumers (Lee, 2015). Panera
Bread is widely known for its healthy
Corporate Citizenship Considerations Continued
According to Morningstar, Starbucks’
CEO’s compensation increased by 24.50
% within the last year, the stock return
increased by 6.07%, and the revenue
increased by 14.59%. According to
Morningstar, Panera Bread’s CEO’s
salary increased by 26.50%, while the
stock return decreased by 1.07% and
revenue increased by 5.07%. Panera
Bread has a standard stewardship
rating (Morningstar, 2015). In
conclusion, Starbucks’ quality of
corporate citizenship is good because
the CEO’s compensation moved at a
fair rate in correlation with the firms’
stock return and revenue increase.
Starbucks has an exemplary
stewardship rating
(Morningstar, 2015). One
could rank Panera Bread’s
quality of corporate
citizenship average because
the CEO’s compensation
increased by 26.50% while
investors lost. Panera bread
has a standard stewardship
rank, which is just average.
options. According to Bloomberg,
Panera Bread gained the title
“healthiest restaurant” in 2009
(Richards, 2015). Considering
consumers recent stride toward
healthier consumption, one might
attribute this title to the momentum of
success experienced by Panera Bread.
Panera Bread offers a wide variety of
healthy options for breakfast, lunch,
and dinner. In addition to offering a
healthy food selection, Panera Bread
also contributes to charitable causes.
According to Bloomberg Panera
Bread donated baked goods to
charities (Bloomberg, 2009).
According to R-Magazine, Panera
Bread is soon to add to their healthy
image by removing up to one hundred
fifty food additives from their
products. The CEO of Panera Bread
states, “How do I want to feed my
daughter? That is the gold standard
question and when I answer that, it
tells me what I want to do for my
customers. Because my customers
are no different than my daughter”
(as cited by Richards, 2015;
RMagazine, 2015).
(the street, 2015).

9
Technical valuation
Panera Bread Figure 9.2Starbucks Figure 9.1
Technical valuation uses historical data to provide
insight to the reader of previous trends of supply and
demand for each particular stock. It gives the reader
an estimate of when stocks are a buy and when they
are a sell based on the supply and demand of the firm.
Basic economics teaches that price is a function of
supply and demand. When demand is higher than
supply there is a shortage, which causes prices to
increase. When supply is higher than demand there is
a surplus, and prices will fall. The simple moving
average (SMA) is a line depicting the price of a stock
for the last 10, 50, or 200 days. When demand and
supply are equal, one can expect the price to be above
the SMA. The yellow line in figure 9.1 is Starbucks’
50 day SMA, and the blue line is Starbucks’ 200 day
SMA. One can gather that Starbucks’ 50-day SMA is
consistently over the 200 day SMA; this is a positive
sign for investors. If a company is more established,
then its simple moving average will be more
consistent than a less established company. The black
line represents the price of the stock. When the price
is below the SMA, then one should sell the stock.
When price is above the SMA then the stock is a buy.
At the end of 2012 price fell below the SMA
indicating a sell. According to Stockkevin, this is
when stock share dropped 22% over a two-day time
span dropping the price of a share of stock from $62
to $46 (Hsu, 2012). When a stock's price falls, it will
cause the price line to fall below the SMA. The price
fell below the stock again in 2014 (indicating a sell).
Figure 9.1 shows Panera Bread’s simple moving
average of fifty days, and Panera Bread’s simple
moving average of 200 days in correlation with price
(and supply and demand), one can see that Panera
Bread’s SMA and price are extremely volatile
compared to that of Starbucks. This is because
Starbucks is more of an established company than
Panera Bread. Starbucks has been around longer than
Panera Bread, which results in Starbucks' data being
more consistent than the data for Panera Bread.
Panera Bread’s stock was a sell until late 2011
(possibly a result of the 2008 recession) when the 50-
day SMA intersects and exceeds the 200-day SMA
and price exceeds the SMA. An indication to sell
occurred again in the middle of 2012 when the SMA
intersected and dropped below the 200 day SMA.
Soon after, the 50-day SMA intersected and rose
above the 200 day SMA, indicating a buy. The
volatile trend continues implying the inconsistency of
demand for the stock. One can assume that when
demand is increasing the price of a stock is rising (and
thus the 50 day SMA is above the 200 day SMA
indicating a buy). When the demand of a stock falls,
the price of a stock plummets, and the 50-day SMA
will drop below the 200 day SMA indicating a sell
(CBKB, 2015).

10
References
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126.1.PNRA.NAS?symbol=PNRA&form=PRFISB
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http://www.wikinvest.com/stock/Panera_Bread_Company_(PNRA)

11
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