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Sprouts Farmers: Buy The Dip, This Could Be The Next Takeout Target

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Sprouts Farmers: Buy The Dip, This Could Be The Next Takeout Target

After Sprouts Farmers Market Inc (NASDAQ: SFM) shares dipped following the news of Amazon.com, Inc. (NASDAQ: AMZN)'s acquisition of Whole Foods Market, Inc. (NASDAQ: WFM), Oppenheimer analyst Rupesh Parikh believes the news has created a huge buying opportunity for the supermarket chain.

“We view the SFM sell-off today as an attractive entry point to get involved with a very high-quality retailer. On a fundamental basis, we believe the company remains well positioned on its own and there is also takeout potential down the road. As we have written in the past, we see a takeout value as high as ~$30,” said Parikh (see Parikh's track record).

Thus, Parikh upgraded the stock to Outperform with a $24 price target.

The 2 Different Scenarios

Parikh believes with Whole Foods no longer in the picture, two potential scenarios could play out:

    1. In the base case, the stock is worth $22 without a takeout.
    2. With an acquisition, the stock could be worth approximately $30 dollars.

The largest risk to these estimates is if Whole Foods massively cuts prices in order to gain a competitive advantage.

Sprouts shares were trading down over 5 percent, at $21.16, during Friday’s market session.

Related Links:

Amazon Will Buy Whole Foods For $13.7 Billion

Amazon's Acquisition Of Whole Foods Should Create Lower Prices, Offer Better Consumer Experience

Latest Ratings for SFM

DateFirmActionFromTo
Jul 2020MKM PartnersInitiates Coverage OnBuy
Jul 2020UBSMaintainsNeutral
Jul 2020BarclaysDowngradesEqual-WeightUnderweight

View More Analyst Ratings for SFM
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StockFirmActionPT
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RLICompass PointInitiates Coverage On90.0
CSCOWolfe ResearchDowngrades42.0
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