The Fresh Market's Worth $28, Not $44: BMO's Kelly Bania

In a report published Monday, BMO Capital analyst Kelly Bania upgraded the rating on The Fresh Market, Inc. TFM from Outperform to Market Perform, while lowering the price target from $44 to $28.

The analyst believes the company faces the risk of negative comps, driven by the sharp decline in prices across several of The Fresh Market's key categories, such as dairy, produce and seafood.

"While we continue to see longer-term potential in the TFM story given its compelling unit economics and not-so-organic niche of providing high-quality fresh foods in a convenient/high-service setting, we believe one of TFM's weaknesses could be exposed in the current environment, which could… weigh on the stock's valuation," Bania stated.

As compared to its competitors, the analyst believes that the company might not be able to react rapidly with price/promotion investments to drive volume in a deflationary environment. This would expose The Fresh Market to the risk of negative comps in future quarters.

"We believe this comes at a time when we expected TFM to restore investor confidence by returning to a more predictable and consistent pattern of growth, and it could add further uncertainty in TFM's strategy and also suggests that TFM may not be responding aggressively enough to the changing landscape," Bania explained.

Also, given the absence of a permanent CEO, the analyst expects the company to be less focused on the external environment, which is volatile at present. Currently, the company appears to be in the early stages of assessing and implementing strategies to grow traffic, based on opportunities identified last year.

"Despite the risk of negative comps, we do believe that GM%s are somewhat protected by TFM's typical lag in passing along lower prices, which could help insulate earnings," the BMO Capital report added.

The F2016 EPS estimate has been lowered from $1.85 to $1.82, based on the revised comps for F2Q15 and F3Q15.