Sprouts Farmers Market, Inc. SFM ended Friday’s trading session at $147.79, demonstrating strong upward momentum and price stability. The stock traded well above its 50 and 200-day simple moving averages of $95.04 and $134.33, respectively. Now, investors must decide how to approach this stock. Should they cash in gains, make fresh investments or maintain their current stake?
Sprouts Farmers stock has risen 206% in the past year, outpacing the industry and the S&P 500's growth of 81.8% and 28.6%, respectively. It has outperformed the broader Retail and Wholesale sector, which posted growth of 33%.
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Sprouts Farmers shares are currently 5% below their 52-week high of $155.64, attained on Nov. 29. This pullback from the recent peak may suggest challenges in sustaining upward momentum. However, SFM could also present an opportunity for growth if the stock breaks through its previous high.
Sprouts Farmers’ Growth Drivers
With a strong focus on catering to health-conscious consumers, Sprouts Farmers has steadily improved its product assortment to align with customer preferences. The company’s commitment to organic produce, which is growing faster than conventional alternatives, underscores its dedication to making healthier choices more accessible to shoppers.
To strengthen customer engagement and attract more shoppers to its stores, Sprouts Farmer has refined the company’s marketing strategies. By tailoring its campaigns to align with regional and market-specific preferences, the company ensures a more personalized and impactful connection with its customer base.
Sprouts Farmers is also expanding the company’s retail footprint with nine new stores opened in the third quarter, bringing its total to 428 locations across 23 states. The company plans to open 33 new stores by the end of this year, slightly adjusting its earlier guidance of 35 due to delays caused by Hurricane Milton. Looking ahead, Sprouts Farmers has nearly 110 new stores approved and more than 70 leases in the pipeline, focusing on high-demand markets and tailored community engagement to solidify its presence nationwide.
Sprouts Farmers is strengthening customer engagement through a strategic blend of omnichannel efforts. By partnering with Uber Eats, DoorDash and Instacart, the company is expanding its digital footprint and accelerating growth in e-commerce. Moreover, Sprouts Farmers is investing in advanced technology to establish a robust customer data foundation, allowing for more personalized interactions that deepen engagement and enhance customer loyalty.
At the same time, Sprouts Farmers has optimized its operations by leveraging advanced technology and refining processes. This has resulted in improved stock levels, reduced shrinkage, increased sales and an enhanced overall shopping experience for its customers.
SFM’s Financial Health Snapshot
Sprouts Farmers maintains a strong financial position with $309.7 million in cash and cash equivalents as of Sept. 29, 2024. This ample reserve is more than sufficient to cover its $7.7 million in long-term debt and finance lease liabilities. Year to date through Sept. 29, 2024, the company generated $520.4 million in operating cash flow and invested $132 million in capital expenditures, net of landlord reimbursements.
SFM’s Upbeat Outlook
SFM expects comparable store sales growth in the range of 8-10% for the fourth quarter of 2024, with adjusted earnings per share between 67 cents and 71 cents compared with 49 cents reported in the year-ago period.
For 2024, Sprouts Farmers Market anticipates total sales growth of approximately 12%, with comparable store sales growth expected around 7%. The company expects adjusted earnings before interest and taxes to be between $490 million and $495 million and full-year adjusted earnings per share are forecasted to range from $3.64 to $3.68.
Estimate Revision Favoring SFM
Strong investor confidence is evident around SFM, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and the next fiscal year by 9.2% to $3.68 and 14.1% to $4.21 per share, respectively. These estimates indicate expected year-over-year growth rates of 29.6% and 14.4%, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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SFM Stock Valuation
From a valuation perspective, Sprouts Farmers looks stretched. SFM’s forward 12-month price-to-earnings ratio was 35.28X, higher than the industry’s ratio of 21.44X. This elevated P/E ratio indicates the market’s confidence in the company’s aggressive expansion into new markets and its innovative product strategies.
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What Should Be Your Approach Toward SFM?
Sprouts Farmers continues to demonstrate strong growth trajectory, driven by its focus on expanding product assortment, enhancing customer engagement and improving operational efficiencies. The company’s stock performance over the past year highlights its success in catering to demand for natural and organic products, while also making significant investments in e-commerce. SFM presents a compelling investment opportunity, particularly for investors looking for a resilient, growth-oriented stock. Sprouts Farmers currently sports a Zacks Rank #1 (Strong Buy).
Other Stocks to Consider
Ingredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
INGR delivered a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current-financial year’s earnings indicates growth of 12.4% from the year-ago reported number.
Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT delivered a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 228.6%, respectively, from the prior-year reported levels.
US Foods Holding Corp. USFD engages in marketing, sale and distribution of fresh, frozen and dry food and non-food products to foodservice customers in the United States. It currently carries a Zacks Rank #2. USFD delivered an earnings surprise of 3.7% in the last reported quarter.
The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.
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