Why BofA Double Downgrades Sprouts Farmers Market To Underperform

Sprouts Farmers Market Inc SFM expects double-digit percentage cost inflation and price hikes to continue through 2022, according to BofA Securities.

The Sprouts Farmers Market Analyst: Robert Ohmes downgraded the rating for Sprouts Farmers Market from Buy to Underperform while reducing the price target from $40 to $25.

The Sprouts Farmers Market Thesis: The company faces the risk of a continued decline in units per transaction, which will offset any price increase benefits, Ohmes said in the downgrade note.

This is because Sprouts Farmers Market “lacks broad exposure to conventional grocery consumable items, where we believe the unit decline is less dramatic in a highly inflationary environment,” the analyst mentioned.

He added that there is unlikely to be any material earnings upside, given the company’s “more narrow assortment of higher price-point differentiated (vs. conventional grocers and discount stores) specialty items.”

Ohmes reduced the earnings estimate for 2022 from $2.20 per share to $2.15 per share.

SFM Price Action: Shares of Sprouts Farmers Market had tanked almost 23.09% to $24.11 at the time of publication Thursday.

Photo: Sprouts Farmers Market