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On March 19, “Bloomberg reported that Albertsons Companies Inc (NYSE:ABS) and Sprouts Farmers Market Inc (NASDAQ:SFM) held preliminary merger talks with proposed plans to take SFM private. The article noted the talks are at an early stage and may not lead to a deal,” Oppenheimer’s Rupesh Parikh said in a note.
The analyst maintains a Perform rating on Sprouts Farmers Market.
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Sprouts ‘In Play’
Following a meeting with management on March 16, Parikh expressed a more positive stance on Sprouts Farmers Market, while mentioning that management was upbeat regarding the business.
However, if the company is “in play,” the analyst expects Kroger Co (NYSE:KR) and Whole Foods Market, Inc. (NASDAQ:WFM) to be interested.
“We suspect a high $20's-low $30's range would be a minimum to get a deal done, as industry valuations currently are depressed due in part to deflationary pressures. We expect WFM to be up in sympathy,” Parikh stated.
Whole Foods Versus Kroger
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Using a mathematical model of a combination of Whole Foods and Sprouts Farmers Market, the analyst noted that a consolidation in the specialty grocery space might be warranted, although there still were major obstacles.
“We also do not believe SFM is in a rush to consummate a deal as a return to inflation and/or corporate tax reform could boost the company's valuation,” the analyst went on to say.
With regard to a bid from Kroger, Parikh believes the company “looks favorably upon the smaller format box as evidenced by the Lucky's partnership. Geographically, this would also remove a key market share grabbing competitor of KR boxes in a growing number of markets.”
On the other hand, Sprouts Farmers Market could be a compelling way for Whole Foods to achieve its goal of broadening its customer base.
“For us, the sticking point would be valuation especially if potentially bigger-pocketed rivals are in the mix,” the analyst added.
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Sprouts Farmers Market Six-Day Winning Streak In Jeopardy
Kroger Stands Its Ground In Price War With Wal-Mart, But Do Market Share Gains Offset Declining Comps?_________Image Credit: By Littletung (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.