BMO (TSX:BMO) Capital Markets has upgraded Sprouts Farmers Market (NASDAQ:SFM) to “Market Perform” from “Underperform” and raised its price target to $102. The upgrade comes on the heels of the company’s strong second-quarter performance, which saw same-store sales outpacing expectations.
Despite concerns about increased competition, BMO believes SFM’s robust sales growth has positioned the company to withstand potential challenges. Analysts flag that the company's earnings per share (EPS) have exceeded expectations and that full-year guidance has been raised.
Key factors driving the upgrade include:
Stronger-than-expected same-store sales: BMO highlights that SFM’s sales growth has been exceptional, even in a challenging consumer environment. “SFM's same store sales are too strong to ignore,” analysts said.
Earnings upside: The company's EPS has outperformed estimates, and full-year guidance has been raised, indicating strong financial performance.
Resilience to competitive pressures: While BMO flags competitive risks, it believes SFM's current sales momentum may be sufficient to absorb potential impacts.
However, analysts are also cautioning that SFM's pricing strategy could face challenges if demand elasticity proves to be lower than anticipated.
Additionally, the company will need to improve its SG&A management to sustain profitability.