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Bull of the Day: Sprouts Farmers Market (SFM)

Madeleine Johnson

Based in Phoenix, AZ, Sprouts Farmers Market (SFM) is a health & wellness-focused grocery store chain that offers customers a wide selection of fresh produce, bulk foods, vitamins, and natural and organic items.

Q1 Earnings Better-Than-Expected

Adjusted diluted earnings per share of 79 cents easily beat the Zacks Consensus Estimate, and the company sees a positive earnings impact from the coronavirus pandemic of around 22 cents per share.

Comparable store sales surged 10.6% during the quarter, while net sales of $1.6 billion increased 16% year-over-year.

“During the first quarter, the COVID-19 crisis led to a significant increase in sales as consumers bought more food to consume at home. As we navigate these ever-changing circumstances, we remain steadfast and decisive, prioritizing team member and customer safety and remaining in-stock on fresh, healthy food for our communities, all the while not losing sight of our transformational strategy that will set us up for long-term success,” said CEO Jack Sinclair.

As for new, additional safety measures, Sprouts is increasing the cleaning and sanitation of its stores and implementing social distancing protocols as well. Sprouts also gave its employees $2 extra per hour during the crisis in March.

Even though the pandemic has created a sense of uncertainty, the company has laid out long-term growth strategies that will help drive profitability: refocusing attention on its target customers, expanding in select markets, and refining its brand and marketing approach

Key Valuation & Earnings Growth

 

Sprouts Farmers Market Inc Price and Consensus

 

Shares of SFM have gained more than 27% compared to the S&P 500’s drop of roughly 9.7%. Earnings estimates have been rising, and Sprouts is a Zacks Rank #1 (Strong Buy) right now.

For the current fiscal year, five analysts have revised their bottom line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up 22 cents to $1.50 per share; earnings are expected to increase 20% compared to the prior year period. 2021 looks strong as well, with earnings expected to continue positive year-over-year growth.

SFM also offers potential investors value. It only trades at 19X trailing 12-month earnings, well below it’s the broader Retail-Wholesale market (27.5X).

If you’re an investor searching for a grocery stock to add to your portfolio, make sure to keep SFM on your shortlist.

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