Deutsche Bank’s Karen Short maintained a Buy rating on Sprouts Farmers Market Inc SFM, while raising the price target from $32 to $35.
Almost “Bulletproof”
Terming the company “one of the best growth stories in retail,” Short mentioned that a recent meeting with management helped raise confidence in the strength of Sprouts Farmers Market’s business model.
The analyst pointed that that the 1Q16 and FY16 EPS and comp guidance was reaffirmed, despite expectations of inflation during 1Q settling in the one percent range.
Short also noted that “grocery is actually the 2nd last department a customer migrates to – and this speaks to the sustainability of SFM's business model - specifically - the customer is already "core" by the time they start buying non-perishables, so skeptics are vastly over-emphasizing the potential threat of competition in this category.”
Expectations of Growth
In addition, the analyst believes that there is a wide variety of PL and merchandising initiatives that could drive margins and comps, while lowering the company’s exposure to produce volatility.
According to the Deutsche Bank report, “customers increasingly use SFM as their primary grocer as evidenced by the 20+ percent increase in average weekly sales since 2013,” while “the competitive landscape remains rational.”
Short also mentioned that while 4Q has traditionally been Sprouts Farmers Market’s weakest quarter, the experience from the FY15 holiday season led management to believe that there could be meaningful opportunity to grow holiday sales going forward.
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