On Thursday, BofA Securities updated its outlook for Sprouts Farmers Market (NASDAQ:SFM), increasing the price target to $135 from $115 while reiterating a Buy rating on the stock. The firm anticipates Sprouts to report its third-quarter results on October 30, with an expected adjusted earnings per share (EPS) of $0.73 and a 4% rise in comparable store sales, which are both marginally lower than the consensus estimates.
The BofA analyst noted that the third-quarter forecasts suggest a slowdown in sales growth compared to the second quarter. This aligns with trends observed in Bloomberg Second Measure data. Despite this, the analyst believes there are positive indicators supporting the company's third-quarter outlook, including robust Placer foot traffic data and potential sales and margin benefits from a reduction in fresh produce promotions, as indicated by recent Nielsen data.
The new price target of $135 reflects a price-to-earnings (P/E) ratio of approximately 34 times, based on the firm's forward-looking valuation into 2026. This valuation marks an increase from the previous target, which was set at a P/E ratio of 32 times the firm's estimated EPS for 2025. The upward adjustment in the price target is attributed to expectations of continued strength in same-store sales, a sustained higher gross margin rate, and the potential for further upward estimate revisions fueled by comparable sales growth in 2024 and anticipated return to sales, general, and administrative (SG&A) leverage in 2025.
In summary, the analyst at BofA Securities maintains a positive stance on Sprouts Farmers Market, citing continued sales momentum and improved gross margins as key drivers for the company's performance and the raised price target. The market will be watching closely when the company reports its third-quarter earnings at the end of the month to see if the expectations align with the company's performance.
In other recent news, Sprouts Farmers Market has been making significant strides in its financial performance and strategic direction. The company reported a second-quarter earnings per share (EPS) of $0.94, a 33% year-over-year increase, and a same-store sales growth of 6.7%. In addition, the company launched a new $600 million share repurchase program, reflecting its strong cash flow and confidence in its strategic direction.
Several financial research firms have adjusted their outlooks on Sprouts Farmers Market. Evercore ISI upgraded the company's rating from In Line to Outperform, raising the price target to $120. RBC Capital initiated coverage with a Sector Perform rating, anticipating consistent high-single-digit to low-double-digit net sales growth. BofA Securities maintained a positive outlook, raising its price target to $115. JPMorgan increased its price target to $96 and introduced a 2026 EPS estimate of $4.21.
Wells Fargo upgraded the company's stock from Underweight to Equal Weight, raising the price target to $90. BMO Capital also upgraded the stock from Underperform to Market Perform, with an increased price target of $102. CFRA increased its price target for Sprouts Farmers Market to $109.00, maintaining a Hold rating on the stock.
InvestingPro Insights
Sprouts Farmers Market's recent performance aligns with several InvestingPro metrics and tips, providing additional context to BofA Securities' bullish outlook. The company's market cap stands at $11.89 billion, reflecting its significant presence in the specialty grocery sector.
InvestingPro data shows that Sprouts has demonstrated impressive growth, with a 171.6% price total return over the past year and a robust 147.04% year-to-date return. This strong performance is consistent with BofA's optimistic view and increased price target.
Two relevant InvestingPro Tips highlight that Sprouts is "trading near its 52-week high" and has shown a "strong return over the last three months." These tips corroborate the positive momentum mentioned in the article and support the analyst's bullish stance.
It's worth noting that Sprouts' P/E ratio of 37.02 suggests the stock is trading at a premium, which aligns with the article's mention of the increased price target reflecting a higher P/E multiple. This valuation could be justified by the company's growth prospects and improved margins, as discussed in the BofA analysis.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Sprouts Farmers Market, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.