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Chipotle Soars, Panera Bread Flattened

NEW YORK (TheStreet) - Chipotle Mexican Grill (CMG - Get Report) and Panera Bread (PNRA - Get Report), two restaurant stocks in the hot fast-casual segment, reacted very differently in Friday morning trading.

Shares of Chipotle soared, gaining 11.7% to $490.33, as investors cheered the company's third-quarter earnings report released the night before. The Denver-based burrito maker reported better-than-expected revenue and same-store sales comparisons, but fell short of Wall Street expectations on profit, as margins took a hit from higher food costs.

Chipotle "delivered another solid [quarter] and outlook. While EPS missed, this will be viewed as a minor negative relative to the healthy SSS result and confirmation of a price increase next [year]," Deutsche Bank analyst Jason West wrote in a research note.

The fast casual Mexican eatery said profit rose 15% to $83.4 million, or $2.66 a share. Analysts were expecting the Chipotle to report earnings of $2.78 a share. Despite the earnings miss, revenue came in better-than-expected, up 18% from last year's third quarter to $826.9 million. Same-store sales comps were strong, up 6.2% over last year's third quarter -- a result of higher traffic.

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Chipotle also raised same-store sales comp guidance for the year, now expecting growth in the "mid-single-digit" range. It also plans to increase the number of store openings in 2014, to between 180 and 195 new stores.In 2013, Chiptole said it expects to open between 165 and 180 new stores.

On the other hand, shares of Panera slipped 1.8% to $157.69 after Wedbush Securities downgraded the stock to "neutral" from "outperform" based on concerns about store traffic in the third quarter.

Panera reports earnings on October 22. Consensus estimates are calling for earnings growth of 9% to $1.35 a share on revenue of $585 million, an increase of 10% year over year.

Wedbush Securities equity analyst Nick Setyan believes that same-stores sales slowed in the third quarter. "We no longer expect upward estimate revisions based on our most recent round of checks that indicate a softer end to [the third quarter]" as well as October same-store sales that are below expectations, Setyan wrote in a note.

Setyan lowered his third-quarter comp expectations to 2.7% from 3.1%, below the consensus of 2.8%. Setyan also lowered fourth-quarter comps expectations to 2.5% from 4%.

"Our checks of 10% of company-owned locations indicated comp deceleration as Q3 came to a close and Q4 QTD comps of [approximately] 2.5%," Setyan writes in a note. "This is a reversal from our August-end checks that indicated an accelerating trend line from July. We now believe the short-lived comp acceleration may have been due to upped promotional activity around loyalty designed to drive near-term visits, and that the comp slowdown may be more structural in nature than we previously believed."

The analyst believes Panera may disclose disappointing 2014 comps and earnings guidance when they report on October 22.

Setyan also lowered his 2013 earnings estimate by 6 cents to $6.81 a share and 2014 earnings estimate by 6 cents to $7.78 a share. He also cut his 12-month price target by $25 to $165, noting that share repurchases will limit the stock's downside.

"Even as PNRA's unit growth likely slows over thenext [five] years, we believe that given its healthy franchise base, it is well positioned to adjust its capital structure and operating model to suit a mature model," Setyan writes. "Given the roadmaps of [Dunkin' Donuts DNKN], [Burger King BKW], and [Domino's Pizza DPZ], we believe refranchising and leveraging would justify a share price [greater than] $200 once near- to medium-term obstacles, such as turnover in investor base, are overcome."

-- Written by Laurie Kulikowski in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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