Panera The Ultimate Winner From Chipotle's E. Coli Disaster?

• Panera Bread Co PNRA shares are down 7 percent year-to-date, even after hitting a high of $197.86 on October 7.
• Maxim Group’s Stephen Anderson upgraded the rating on the company from Hold to Buy, while raising the price target from $208 to $210.
• Panera is expected to gain market share at the expense of Chipotle Mexican Grill, Inc. CMG, Anderson mentioned.

Analyst Stephen Anderson mentioned that Chipotle’s sales are likely to come under pressure for an extended period due to the recent E. coli epidemic. The E. coli outbreak has been detected in six states across the US and additional cases are likely to be reported, which would impact Chipotle’s traffic nationwide more adversely for the next few quarters.

Panera could gain market share at the expense of Chipotle, which is “a compelling near-term catalyst for PNRA.” Panera is the only other fast casual chain with a nationwide presence similar to that of Chipotle and the former company would be “a primary beneficiary of what we believe will be a defection of traffic from CMG,” Anderson said.

“By our model, PNRA will have comp upside of as much as 50 bps -100 bps in 4Q15E (December) and 25 bps-50 bps in 1H16E,” the Maxim Group report stated.

Although Panera’s margins could remain under pressure through the first half of 2016, the combination of same-restaurant sales growth, easier y/y comps on labor costs, and lower commodity costs would result in a return to margin expansion by 2016, Anderson believes.

“Specifically, if management decides not to implement table delivery (in which staff delivers food to the table) system-wide, we estimate that this could add as much as 20 bps-30 bps to operating margin (or about $0.26-$0.39 EPS) on an annualized basis,” the report added.