• Bloomin' Brands Inc (NASDAQ: BLMN) shares have declined 32.07 percent year-to-date, touching a low of 16.97 on October 30.
• Morgan Stanley’s John Glass has downgraded the rating on the company from Overweight to Equal-weight, while lowering the price target from $25 to $19.
• The downgrade is based on “thesis creep,” with the key assumptions underlying appear to have eroded over the past few quarters.

Analyst John Glass explained that although the current valuation was the lowest among peers, near-term comps are likely to decline, labor-related margin pressure has been rising and there is “tail risk from Brazil.”

“While our initial recommendation on this name was predicated on accelerating traffic gains vs its peers, unit growth, store remodels/relocations and margin improvement, many of those have become less impactful drivers than we'd initially hoped,” Glass went on to say.

Bloomin’ Brands is expected to continue to see weak same store sales, not only in Q4 but also in 1H16, as the company laps the elevated sales gains from 2014.

According to the Morgan Stanley report, “Typically there is a high correlation between comp deceleration and earnings multiples in restaurants.”

Although Glass had expected the company to generate positive gap to industry traffic at Outback, the gap has turned slightly negative in the previous quarter, driven by increased competition, “less effective” promotions and “the brand pivoting back to higher check, less discounted, steak-centric offers.”

“Based on tougher comparisons, we expect BLMN comps to be challenged over the next three quarters,” Glass added.