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Wells Fargo Downgraded Sprouts Farmers Market

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Wells Fargo downgraded Sprouts Farmers Market

Wells Fargo downgraded Sprouts Farmers Market (SFM) to “market perform” on September 24 from “outperform.” Analysts Edward Kelly, Stephanie Chang, and Anthony Bonadio maintained their target price of $26 on the company, which represents a 6% downside to the share price on September 24.

On average, analysts have assigned Sprouts Farmers Market a target price of $28.11, which translates to a modest upside of 2%. The individual target prices range from $22 to $40.

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What was behind the upgrade?

While Wells Fargo’s analyst team thinks that Sprouts Farmers Market continues to have a “solid growth story.” However, persistent competition in the grocery space is a concern.

“While we like the SFM story, we can’t ignore the fact that the company operates in an intensely competitive industry undergoing structural change,” said Wells Fargo analysts—as reported on Seeking Alpha.

The analysts noted that Sprouts Farmers Market’s emphasis on fresh food to some extent helps it fight the digital threat. The company’s value model should continue to snatch market share from conventional grocers. Also, the Northeast market provides more growth opportunities.

However, Sprouts Farmers Market continues to face extremely high competition, headline risks related to structural changes, and strong year-over-year comparisons in the second half of the year.

The analysts also noted that Sprouts Farmers Market stock has yielded strong returns. Currently, the stock is trading at the highest levels since Amazon’s acquisition of Whole Foods last year.

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