Piper Jaffray Downgrades Noodles & Co. To Underweight

Shares of Noodles & Co

plunged 8 percent in the pre-market hours Thursday after Piper Jaffray downgraded the restaurant operator to Underweight from Neutral, citing recent series of lowered estimates and ensuing lack of confidence in operations. "Our lack of confidence stems from an inability to better project a reasonable level of earnings power. While encouraged by sequential improvement, the difficulty of estimating 1Q16 same-store sales given YoY compares further complicates any clarity around the timing of sustainably positive comp performance," analyst Nicole Miller Regan wrote in a note to clients. While the closure of underperforming company restaurants coupled with incremental marketing may help provide a sustained lift to top-line trends over the longer term, Regan believes it is prudent for investors to step aside in what she see as being a "pay for performance" environment currently. Earning a relatively favorable valuation in this current market is a function of strategic vision and consistent operational trends including unit growth, same-store sales, and profitability at the corporate and store levels. "Within this context, we believe the risk/reward equation is no longer as attractive for NDLS shares," added Regan who also cut the price target on the stock to $8 from $10. Shares of NDLS closed Wednesday's regular trading session at $13.47. In the pre-market hours, the stock was down $1.08 to trade at $12.39. The stock gained 39 percent this year.