RBC Capital upgrades Sprouts Farmers Market stock to Outperform

Investing.com - RBC Capital upgraded Sprouts Farmers Market (NASDAQ:SFM) from Sector Perform to Outperform on Monday, while adjusting its price target to $148.00 from $176.00. According to InvestingPro data, the stock’s technical indicators suggest oversold conditions, with shares trading near their 52-week low.

The upgrade comes as SFM shares have declined approximately 42% since their peak in June, underperforming grocery peers by about 31% and the broader market by roughly 54% during that period. Despite recent underperformance, InvestingPro analysis shows the company maintains strong profitability and trades at an attractive P/E ratio relative to its near-term earnings growth potential.

RBC Capital believes the stock, currently trading at approximately 9 times their 2027 adjusted EBITDA estimate (about 15 times P/E), already reflects expectations of comparable sales deceleration against tough comparisons, while concerns about recent promotional activity are "overblown."

Looking beyond the next few quarters, the investment firm projects Sprouts can achieve low double-digit revenue growth, with comparable store sales increasing 4-5% and unit growth of 8-10%, alongside low to mid-teens EPS growth over the medium term.

The new price target of $148 represents approximately 43% upside potential from current levels and is based on about 13 times RBC’s newly introduced 2027 adjusted EBITDA estimate of $1.102 billion, which is approximately 2% above consensus estimates of $1.078 billion.

In other recent news, Sprouts Farmers Market reported stronger-than-expected second-quarter results, with same-store sales growth of 10.2%, surpassing both analyst estimates of 9.0% and consensus expectations of 8.5%. This performance marked a 120 basis point sequential acceleration to 16.9% on a two-year stack basis. Additionally, Sprouts Farmers Market announced a new $1 billion share repurchase program, replacing the previous authorization that had approximately $143 million remaining. The company plans to execute this buyback through various means, including open market purchases and privately negotiated transactions.

Analysts have been active in adjusting their ratings and price targets for Sprouts Farmers Market. Wells Fargo upgraded the stock from Equal Weight to Overweight, raising its price target to $180.00, citing growth potential despite concerns over decelerating comparable store sales growth. Meanwhile, Barclays also upgraded the stock to Overweight, increasing its price target to $185.00, based on confidence in Sprouts’ steady multi-year trends and potential growth drivers like its loyalty program and e-commerce operations. Conversely, UBS lowered its price target slightly to $180.00 but maintained a Neutral rating due to supply chain impacts.

JPMorgan assumed coverage with a Neutral rating and set a price target of $159.00, down from the previous $165.00, acknowledging Sprouts’ positioning in the health-conscious market. These recent developments highlight the mixed analyst sentiment and strategic moves by Sprouts Farmers Market to navigate the current retail environment.

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