Panera Is Winning From Chipotle's Traffic Drop, New Research Says

• Shares of Panera Bread Co PNRA have gained 14 percent since November 16, when they were trading at around $167.
• Longbrow Research’s Alton Stump upgraded the rating on the company to Neutral.
• Panera is poised to record improved comps from its refranchised platform, besides benefiting from lower traffic at Chipotle following the E.coli scare, Stump stated.

Market checks indicated increased same-store sales for Panera in the current quarter as well as 2016. “Based on our conversations with PNRA franchisees, we believe franchised same-store sales were up in a 1.75-2.25% range to date in 4Q15,” analyst Alton Stump mentioned.

The 2-year stacked comps for franchised Panera restaurants rose by approximately 200mbps on a sequential basis. Share gains at the cost of Chipotle Mexican Grill, Inc CMG following the ongoing E.coli scare are expected to have driven a 50-75 basis point increase in Panera’s 4Q same-store traffic levels. The trend is likely to continue for several more quarters, Stump said.

Another contributor to the higher comps during 4Q was the conversion of several franchised locations to Panera 2.0. “Our contacts are growing increasingly confident they can generate a 12%+ comp lift from the 2.0 conversion, which is a positive sign in our view,” Stump wrote.

Although the additional spend on the rollout of Panera 2.0 will limit the company’s profitability in 2016, improvement in the overall platform can drive meaningful comp upside in coming quarters, the analyst commented. The EPS estimate for 2016 has been raised from $6.32 to $6.54 to reflect higher comp growth.