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BMO Capital Upgrades Sprouts Farmers Market (SFM) to Outperform

May 11, 2015 6:20 AM EDT
Get Alerts SFM Hot Sheet
Price: $64.48 +0.69%

Rating Summary:
    10 Buy, 21 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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BMO Capital upgraded Sprouts Farmers Market (NASDAQ: SFM) from Market Perform to Outperform with a price target of $34.00, saying recent weakness creates a buying opportunity.

Analyst Kelly Bania commented, "We believe recent weakness in SFM shares presents an opportune time to buy one of the most unique and differentiated concepts in US grocery retailing. Factors that have kept us on the sidelines (valuation and risk of slowing comps relative to high expectations) have largely faded in recent months. Our revised target price of $34 is based on 32x our 2016E EPS which now suggests ~25% upside. We believe a 32x P/E multiple is reasonable given Sprouts' long-term EPS growth outlook of 20-25%, differentiated strategy and barriers to entry within the U.S. food retail landscape (aggressive produce pricing & high-customer service levels in vitamins & supplements). In terms of valuation: 1) SFM’s 1- & 2-year forward P/E multiples have reached their lowest point since going public and are now under 32x and 26x, respectively and Consensus EPS for 2016 has pulled back in line with our forecast; 2) on a P/E to growth basis, SFM shares are now at the low-end of our high-growth food retailer universe at 1.2x; and 3) SFM shares are now trading in line/lower than our peer group average of high-growth companies (see Exhibit 3). In terms of the comp outlook, we believe F1Q15 may prove to be a low point for comps as the “tightness” in produce supply improves in the Summer months and tough comparisons (+12.8% in 1Q14) ease throughout the year (+8.5-9.5% 2Q-4Q14). This combined with more realistic expectations following the pullback in the stock may provide SFM shares a base from which to grow."

For an analyst ratings summary and ratings history on Sprouts Farmers Market click here. For more ratings news on Sprouts Farmers Market click here.

Shares of Sprouts Farmers Market closed at $27.23 yesterday.



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