Monday, July 17, 2006

Calls of Note Part 5

- Raymond James notes that in another piece of evidence that growth restaurant stocks may be nearing a capitulation bottom, Barron's magazine published very negative articles on both PF Chang's and Panera Bread (NASDAQ:PNRA) this weekend.

PFCB - before the likely downdraft this morning as a result of the Barron's article - is selling at less than 8x 2006 EBITDA and an extraordinary 6.2x firm's 2007 EBITDA projection. These cash flow valuation levels have historically been seen with restaurant stocks experiencing material financial pressures, which is not the case at PFCB.

PFCB continues to produce exceptional returns on new unit capital. It has a $1.91 per share of net cash on its most recent balance sheet, and they estimate yearend cash will be $3.20 per share. Firm believes longer term investors will be well rewarded by purchases at current levels, and reiterates Outperform rating. Firm's continuing $44.50 price target equates to an 8.7x EV/EBITDA valuation on 2007 forecast. This is still well below the stock's historical cash flow valuation levels.

Notablecalls: I expect PNRA to bounce after the initial weakness. Check out the action in PNRA after CIBC upgraded their rating on June 22.

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