Stifel Starts Kroger, Sprouts At Buy After The Fresh Market Merger Rumor

Shares of The Fresh Market surged on Thursday following reports that the company is being eyed as an acquisition target by Kroger. A day after the rumor, Taylor LaBarr of Stifel initiated coverage of both names along with Sprouts Farmers Market.

LaBarr initiated coverage of Fresh Market with a Hold rating and no assigned price target. According to LaBarr, a "significant white space" opportunity exists within the organic and natural market. However, the company has undergone several missteps in the past, including a failed expansion in California - calling into question "core assumptions" about the company's outlook.

LaBarr initiated coverage of Kroger with a Buy rating and $45 price target. LaBarr noted Kroger posted 48 consecutive quarters of positive identical store sales and has exceeded the broader industry by an average of 100 basis points over the past 10 years. The company also has a proven track record of successfully integrating acquisitions and accelerating footage growth.

LaBarr initiated coverage of Sprouts Farmers with a Buy rating and $22 price target. Finally, LaBarr pointed out that Sprouts Farmers' comp-store sales averaged 5.2 percent over the past 5 years which exceeded the 3.1 percent sector wide growth. The company's management also plans to grow stores at a 14 percent pace through 2020 and this growth is "sustainable" despite "the ebbs and flows of industry competition."