Oppenheimer Continues To Leave Sprouts Farmers Market Shares On The Shelf

Oppenheimer walked away positive after management meetings with Sprouts Farmers Market Inc SFM. But, the brokerage maintained its Perform rating on the stock due to the challenging environment with a heightened promotional backdrop and ongoing deflationary pressures that are likely to continue at least through third/fourth quarter.

"We continue to recommend investors take a defensive posture toward the entire grocery group near term, as the setup is simply not great," analyst Rupesh Parikh wrote in a note.

Parikh said the meeting showed the core health of the business appears sound with strong tonnage growth in both perishable and non-perishable categories and new stores continuing to meet/exceed targets.

The analyst said the company is also seeing positive results with sales-driving initiatives in private-label, meat/seafood, and deli, which suggests more market share gains could be in the offing.

In addition, the meeting suggested that SFM seems comfortable with 8%-ish EBITDA margins over time.

"SFM remains on our radar and very well positioned competitively, but we see no urgency for shorter term investors to get involved, as numbers, especially for FY17, still appear aggressive to us," Parikh added.

At time of writing, shares of Sprouts Farmers Market fell 1.09 percent to $22.30.