Supermarkets are in the red this year
Persistent food deflation and a highly promotional environment took a toll on supermarket stocks this year. Currently, Sprouts Farmers Market (SFM), Kroger (KR), Whole Foods Market (WFM), and Supervalu (SVU) are sitting at YTD (year-to-date) losses of 25%, 26%, 15%, and 40%, respectively. The S&P 500 Food and Staples Retail Index fell 5.8% to date (all data as of November 3, 2016).
Stock price crashed after 3Q16 results
Sprouts Farmers Market’s stock price fell 11.3% after the company reported its results on November 3, 2016. As we discussed in this series, the company continued to face deflationary headwinds and a promotional retail environment that impacted its comps and margins during the quarter.
Strong gain potential
Although Sprouts Farmers Market’s stock price is falling, analysts continue to see the potential for a rebound. The company received a target price of $24.33 from Wall Street analysts, which indicates an upside potential of about 22% over the next 12 months. In comparison, analysts see an upside of 45% on Supervalu, 18% on Kroger, and 3% on Whole Foods.
Wall Street analysts’ recommendations
Sprouts Farmers Market is covered by 19 Wall Street analysts. Of the analysts, 68% recommended a “buy” and 32% recommended a “hold” on the stock. There weren’t any “sell” ratings on the company. In comparison, 12% and 19% of the analysts recommended a “sell” on Kroger and Whole Foods.
Currently, Sprouts Farmers Market is trading at a one-year forward earnings multiple of 21.3x. It’s operating towards the lower end of its 52-week price-to-earnings range of 18.9x–27.7x.
The company continues to trade at a premium to supermarket chains Kroger, Whole Foods Market, and Supervalu. They’re valued at 14.5x, 19.5x, and 7.1x, respectively.
Investors looking to invest in Sprouts Farmers Market through ETFs can choose to invest in the First Trust Consumer Staples AlphaDEX Fund (FXG). Sprouts Farmers Market accounts for ~0.88% of FXG.