Sprouts Farmers Market Upgraded To Neutral At Longbow

In a report published Wednesday, Longbow Research analyst Alton Stump upgraded the rating on

to Neutral, citing valuation as the reason. Analyst Alton Stump said that Sprouts Farmers Market's shares had declined to the prior target price of $24 and fully reflected the various challenges expected to be faced by the company in the future. "We remain concerned SFM will have to make margin-devaluing pricing decisions in order to combat market share pressure, but we believe SFM's valuation now reflect this risk," Stump wrote. The Specialty Food Retailer survey had revealed that the company's same-store traffic was "up mid-single-digits in calendar 2Q15 and to date in 3Q on a y/y basis," the Longbow report stated. "Traffic trends were driven by continued consumer demand for healthy foods and SFM's unique value proposition compared to peers, which offset increased competition from conventional grocers," Stump said. An expected decline in the average prices for organic and natural foods was expected to make Sprouts Farmers Market's price advantage less relevant. The company is better positioned than competitors like

and

to face pressure from the traditional grocery channel. Stump pointed out that Sprout Farmers Market's value-based perishable pricing model attracted a broader customer base and thus had a greater overlap with mass retailers. The recent organic shelf space expansion plans announced by big retailers could hit Sprout Farmers Market's future performance.