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Why Sprouts Farmers Market’s Ratings Have Fallen

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Analysts’ take on Sprouts Farmers Market

Sprouts Farmers Market (SFM) is rated a 2.4 on a scale of one (strong buy) to five (strong sell). The company’s ratings have deteriorated in the past six months. Sprouts Farmers Market was ranked a 2.1 in April. Besides the recent downgrade by Wells Fargo, which we discussed in the previous part, two other brokerage firms lowered their ratings for the company.

On September 17, Barclays downgraded Sprouts Farmers Market from an “overweight” to “equal-weight” rating. Analyst Karen Short cited high valuations, deteriorating margins, and limited upside for same-store sales and earnings in fiscal 2019 and 2020 as the key reasons for the downgrade. She noted that the company continues to face competitive pressure. Sprouts Farmers Market has witnessed a decline in its EBITDA margin from 8.9% in fiscal 2014 to 6.6% in 2018. Short assigned a target price of $30 on Sprouts Farmers Market.

In May, Gordon Haskett lowered Sprouts Farmers Market from “buy” to “hold” after the food retailer lowered its sales outlook along with its first-quarter results.

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Peers’ ratings

Sprouts Farmers Market’s ratings are in-line with other food retailers. Kroger (KR) is rated a 2.4, while Walmart (WMT) is rated a 2.3.

Analysts’ recommendations

Currently, 22 Wall Street analysts cover Sprouts Farmers Market. Among the analysts, 41% recommend a “buy” including Citigroup and Northcoast Research, 55% recommend a “hold” including Gordon Haskett and Credit Suisse, and 4% recommend a “sell” including Goldman Sachs.

In comparison, 38% of the analysts suggest buying Kroger, while 41% recommend buying Walmart. Kroger has a “sell” recommendation from 4% of the analysts, while Walmart doesn’t have any “sell” recommendations.

Investors looking for exposure to Sprouts Farmers Market through ETFs could consider the SPDR S&P Retail ETF (XRT). XRT invests 1.6% of its total holdings in the company.

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