Sprouts Farmers: Buy The Dip, This Could Be The Next Takeout Target

After Sprouts Farmers Market Inc SFM shares dipped following the news of Amazon.com, Inc. AMZN's acquisition of Whole Foods Market, Inc. WFM, Oppenheimer analyst Rupesh Parikh believes the news has created a huge buying opportunity for the supermarket chain.

“We view the SFM sell-off today as an attractive entry point to get involved with a very high-quality retailer. On a fundamental basis, we believe the company remains well positioned on its own and there is also takeout potential down the road. As we have written in the past, we see a takeout value as high as ~$30,” said Parikh (see Parikh's track record).

Thus, Parikh upgraded the stock to Outperform with a $24 price target.

The 2 Different Scenarios

Parikh believes with Whole Foods no longer in the picture, two potential scenarios could play out:

1. In the base case, the stock is worth $22 without a takeout.
2. With an acquisition, the stock could be worth approximately $30 dollars.

The largest risk to these estimates is if Whole Foods massively cuts prices in order to gain a competitive advantage.

Sprouts shares were trading down over 5 percent, at $21.16, during Friday’s market session.

Related Links:

Amazon Will Buy Whole Foods For $13.7 Billion

Amazon's Acquisition Of Whole Foods Should Create Lower Prices, Offer Better Consumer Experience