(Bloomberg) — Sprouts Farmers Market Inc. has already more than doubled this year, and Evercore ISI sees that relentless rally extending even further as the natural and organic food retailer cashes in on well-heeled shoppers’ focus on healthy eating.
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Shares reached an all-time high Monday after analyst Michael Montani upgraded his rating on the grocery chain to outperform from in line pointing to the company’s unique merchandise and growing customer loyalty. The bullish call sent Sprouts shares up 4.4% Monday to a record $106.61. He also boosted his 12-month price target to a Wall Street high of $120, implying the stock has room to advance more than 17% from Friday’s closing price.
“Sprouts appears well positioned to benefit from a healthy-eating wave,” he wrote in a research note. “Despite a slowing grocery retail landscape Sprouts upper-income/health-conscious consumers are proving loyal.”
Montani’s call came after a meeting with management last week and hinges on the fact that some consumers will continue to pay up for healthier options, even as higher interest rates and inflation pressure household budgets.
Montani is also positive on the outlook for Sprouts’ margins, saying inventory management and the company’s “opportunity to leverage vendor relationships” can help offset the impact of investments. The Phoenix, Arizona-based firm’s niche products also minimize overlap with Walmart, he added.
Evercore ISI is one of just three firms tracked by Bloomberg that recommend buying Sprouts shares. The stock has 13 hold ratings and one sell.
Oppenheimer analyst Rupesh Parikh also met with Sprouts management last week. While he left his conversations upbeat on the company’s near- and longer-term prospects, he reiterated his market perform rating, saying the stock’s valuation is the “sole factor” keeping him on the sidelines.
Evercore’s Montani acknowledged that demand for premium and fresh products could stagnate in a recession, but Sprouts has the “ability to gain share/execute amidst a choppy lower income consumer backdrop.”
–With assistance from Katrina Compoli.
(Updates share-price moves and chart.)
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