On Thursday, RBC Capital initiated coverage on Sprouts Farmers Market (NASDAQ:) with a Sector Perform rating and a price target of $107.00. The investment firm's assessment is based on approximately 16 times their adjusted EBITDA estimate of $669 million for the calendar year 2025, which is slightly above the consensus of $645 million. This valuation also implies about 27.1 times their calendar year 2025 earnings per share (EPS) estimate of $3.74, compared to the consensus estimate of $3.69.
The firm anticipates that Sprouts Farmers Market will maintain a consistent high-single-digit to low-double-digit net sales growth moving forward. This projection is supported by the company's low-single-digit comparable sales growth and a substantial opportunity for unit expansion. RBC Capital forecasts a 4.8% increase in comparable sales for calendar year 2024 and a 2.5% rise for calendar year 2025, which is in line with consensus estimates.
RBC Capital's adjusted EBITDA estimates for Sprouts Farmers Market are $604 million for calendar year 2024, rising to $669 million for calendar year 2025. These estimates suggest a bullish outlook for the company's earnings before interest, taxes, depreciation, and amortization, compared to the consensus of $597 million and $645 million for the respective years.
While the business is considered fundamentally sound, RBC Capital notes that the current valuation is lofty and the adjusted EBITDA margins are already well above the peer set. As a result, the firm believes the downside risk outweighs the upside potential at this time. They suggest that investors may want to look for a more attractive entry point into the stock.
Sprouts Farmers Market Recent Developments
Sprouts Farmers Market reported a second-quarter EPS of $0.94, marking a 33% increase year-over-year, and same-store sales growth of 6.7%. The company also launched a new $600 million share repurchase program, signaling strong cash flow and confidence in its strategic direction.
Several financial research firms have upgraded their ratings for Sprouts Farmers Market. BofA Securities raised its price target to $115, while JPMorgan introduced a 2026 earnings per share (EPS) estimate of $4.21. Wells Fargo and BMO Capital also upgraded the company's stock, reflecting its strong sales performance and potential resilience to competitive pressures.
InvestingPro Insights
Real-time data from InvestingPro shows that Sprouts Farmers Market has a market capitalization of $10.08 billion and a P/E ratio of 31.32, indicating premium valuation relative to its earnings growth. However, the PEG ratio of 0.96 suggests a more reasonable price when considering growth expectations. The company's revenue growth remains strong, with a 9.04% increase over the last twelve months.
InvestingPro Tips highlight a 153.78% increase in the company's one-year price total return, signaling investor confidence. Analysts have revised earnings upwards, indicating strong financial performance. The company's ability to cover interest payments with cash flows suggests financial stability.
For a comprehensive analysis of Sprouts Farmers Market's investment potential, visit InvestingPro for exclusive insights and metrics.
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