- Sprouts Farmers Market Inc SFM shares are down 40 percent year-to-date, while Natural Grocers by Vitamin Cottage Inc NGVC shares are down 12 percent.
- Jefferies’ Mark Wiltamuth initiated coverage of Sprouts Farmers Market with Hold and of Natural Grocers with Buy.
- Wiltamuth said that Grocers were facing near-term sales and margin headwinds, with product deflation and high competition.
Analyst Mark Wiltamuth said that Sprouts Farmers Market had a “low-price natural/organic business model,” which made it a “long-term winner.” Demand for natural and organic food is broadening, with the middle class also adding to the customer base, and Sprouts' low prices “position the company to capture these new customers.”
Wiltamuth added, however, that the company’s results would be under pressure in the near term due to competitor discounting, produce deflation and margin drag from young stores. The company is expected to record merely 11 percent growth this year, backed by self-funded store growth of 14 percent. In the long term, the company could generate 18-20 percent EPS growth.
While peers are facing sales and margin headwinds, Wiltamuth expects Natural Grocers to “buck these trends.” The analyst cited the reasons as:
- Fewer new store incursions this year
- A 100 percent organic produce focus keeps the company “out of deflation”
- A low-priced and differentiated offering helps protect the company from competitor discounting
Jefferies expects Natural Grocers to generate 18-20 percent EPS growth, fueled by 20 percent unit growth. Wiltamuth added, “NGVC looks undervalued relative to peers on EV/EBITDA vs. EBITDA growth.”
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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