Market Sees Different Reality at Sprouts Farmers Markets Than Barclays, Remains Top Pick

In a report published Friday, Barclays analysts maintained an Overweight rating on

, while reducing the target price from $42 to $40. Sprouts Farmers Markets reported its 1Q15 adjusted EPS at $0.25, $0.01 below the consensus estimates, but $0.01 ahead of the Barclays estimate. The company's net sales were up 18.7 percent with comps up 4.8 percent, short of the Barclays estimate. "Listening to SFM's 1Q15 EPS call made us feel that the market (represented by sell side analysts) is seeing a different reality for the company than management or Barclays," the analysts mentioned. In sharp contrast to what the markets perceive, Sprouts Farmers Market is not facing increased competition, the deflation in the company's comps is expected to moderate like always, synchronization of new stores openings will moderate the pressure and various short term factors can pressurize comps. "Improving new store productivity is a good indicator of a retail concept's growth potential," the analysts pointed out. "Nothing suggests that SFM is losing its competitive moxie; we still see it as very well positioned to meet the growing demand for healthy foods at value prices," the report added. Sprout Farmers Markets' management has the confidence and the experience to continually adapt and change its concept to satisfy its customers. Referring to the new store format of

, Sprout Farmers Markets indicated that it "did not believe it was possible to operate two formats with vastly different prices unless the product offering was completely different." The company's share price has declined sharply and the analysts view it as "a great value given its very attractive growth opportunity." The EPS estimates for 2Q15 and FY15 have been reduced from $0.25 to $0.22 and from $0.95 to $0.87, respectively.