Sprouts Farmers Market Neutral At JPMorgan On Aggressive Estimates
Although Sprouts Farmers Market Inc (NASDAQ: SFM) has a superior store concept, there is downside to near-tem comp estimates and its margins could erode over time, JPMorgan’s Ken Goldman said in a report. He initiated coverage of the company with a Neutral rating and a price target of $24.
Sprouts Farmers Market is a fast-growing, specialty grocer and its main competitive advantage is that its produce prices are highly attractive, analyst Ken Goldman mentioned. He added that although the stores were well designed and “appealing to a broad range of consumers,” there were three reasons that prevented a more constructive rating.
Comp Estimates Appear Aggressive
Goldman expects deflation to weigh on Sprouts Farmers Market’s comps for at least a couple of more quarters. He estimated comps of 4.2 percent for 2Q16, versus consensus expectations of 4.6 percent. Comp estimates for FY16 and FY17 are at 4.0 percent and 4.8 percent, respectively, versus the Street’s 4.9 percent and 5.1 percent.
Pressure On Margins
Sprouts Farmers Market’s EBITDA margins may be slightly eroded over time by increasing competition, the analyst stated. He added that operating margins could also come under pressure due to higher distribution costs as the company increases its presence beyond the Southwest.
At the current level, valuation appears to be “more-or-less appropriate,” Goldman commented.
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Latest Ratings for SFM
|Sep 2016||Barclays||Initiates Coverage on||Overweight|
|Sep 2016||Deutsche Bank||Downgrades||Buy||Hold|
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