Wedbush Initiates Coverage of Sprouts Farmers Market With an Outperform Rating

by Jayson Derrick

August 28, 2014 11:55 AM | 2 min read | Make a Comment

Kurt Frederick of Wedbush initiated coverage of Sprouts Farmers Market SFM on Wednesday, along with other natural organic grocers. Frederick believes that Sprouts offers investors a “compelling unit growth” opportunity with just 177 of a possible 1,200 locations in the U.S. currently open. “We believe Sprouts has a long runway ahead of it to open new stores in both existing and new markets,” Frederick wrote. “Management plans for 12 percent annual unit growth, and its extensive due diligence around new market entry and store selection provide confidence in the performance of new store opening, which are confirmed by new store productivity often even exceeding mature store levels.” According to Frederick, Sprouts' “Healthy Living for Less” slogan resonates with consumers who are looking for healthy eating options at reasonable prices. The analyst adds that Sprouts undercuts competitors in fresh produce which could help the company drive a sustained sales momentum. Frederick notes that Sprouts sales could see near-term sales moderation nd margin compression due to the large number of stores the company plans to open in the quarter. However, the analyst adds that this fact may already be reflected in the current share price and that margins should see improvements in 2015 from the sales contribution of these new locations. Sprouts could sustain its already impressive annual revenue growth rate of roughly 20 percent and nine percent to ten percent same-store sales growth over the next few years, according to Frederick. To sustain these levels, the company will see low-teens unit growth in an industry that is expected to grow in the double-digits. In addition, the company is expected to remodel 12 percent to 15 percent of all stores in 2015 which could also help drive earnings per share to the upside. Shares were initiated with an Outperform rating and $37 price target.

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Posted In: News Kurt Frederick Organic Grocers Sprouts Farmers Market

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