Market Overview

4 Reasons Sprouts Farmers Market Takeover Report Makes Sense

Share:
4 Reasons Sprouts Farmers Market Takeover Report Makes Sense

Thanks to volatility in food prices, Albertsons LLC's reported eye on a merger with Sprouts Farmers Market Inc (NASDAQ: SFM) could be a golden opportunity for the bigger chain to add the organic grocer to a business that currently includes Safeway stores, analysts said Tuesday.

“Could be an opportunistic move by Albertson's,” said BMO Capital Markets, which called Albertsons' overtures (first reported by Bloomberg) “one of the most differentiated concepts in U.S. food retail.”

Downgrade Justification

BMO, which downgraded Sprouts to Market Perform, said the produce-heavy Sprouts had hit a rough patch because of “extreme produce deflation.”

“We believe this move by Albertsons, if accurate, could debunk the popular short thesis on SFM that its produce-led promotional strategy was flawed and easily replicated by traditional supermarkets,” BMO said.

BMO said there are other things to consider:

    1. Whole Foods Market, Inc. (NASDAQ: WFM) or Kroger Co (NYSE: KR) could also be interested if Sprouts is indeed in play.
    2. There is an awful lot of overlap in geography between Albertsons and Sprouts. It said 81 percent of Sprouts and Albertsons stores are within five miles of each other.
    3. Both companies use KeHe Distributors, LLC, which could help distribution synergies.

BMO said that while it expects mergers and acquisitions to increase during a tough time for U.S. food retail, “we caution investors from extrapolating this news as a sign that Underperform-rated Whole Foods could elicit similar interest from potential larger enterprise value ($9.7 billion) and structural pricing challenges that go beyond the current challenging deflationary environment, in our view.”

Beyond BMO

Oppenheimer Holdings also weighed in on the possible merger, saying it also believed Kroger and Whole Foods would 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.”

At time of publication, Sprouts shares were up 3.55 percent at $22.60.

Related Links:

Oppenheimer Weighs In On Sprouts Farmers As An 'In Play' Target

Sprouts Farmers Market Six-Day Winning Streak In Jeopardy

Latest Ratings for SFM

DateFirmActionFromTo
Aug 2019UpgradesNeutralBuy
Aug 2019DowngradesMarket PerformUnderperform
Aug 2019DowngradesOverweightNeutral

View More Analyst Ratings for SFM
View the Latest Analyst Ratings

Posted-In: Analyst Color M&A News Downgrades Rumors Commodities Markets Analyst Ratings Best of Benzinga

 

Related Articles (KR + SFM)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
CMGStephens & Co.Maintains800.0
LAMRImperial CapitalDowngrades86.0
MTZKeyBancMaintains75.0
MCDKeyBancMaintains225.0
JECKeyBancMaintains103.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

TransDigm Crushed After Rep. Khanna Calls For Fraud Investigation

Exclusive: FireEye CEO Reflects On Company's Transition, What Keeps Him Up At Night