3 Reasons to Buy Sprouts Farmers Market Ahead of Earnings
Having hit record highs at the start of the summer, Sprouts Farmers Market Inc (NASDAQ: SFM) has spent much of the past few months sliding lower. It’s a tough pill for investors who believed the good times would last forever, but for those of us on the sidelines, there are actually some reasons to get excited.
Shares of the specialty grocery chain have fallen more than 40% since June, in what has been an almost one-directional slide. However, after logging 15 days of straight losses, they’ve actually started to stabilize this week, rebounding from Tuesday’s low and holding their ground since. Technical indicators show the selling pressure may finally be easing, and with earnings due later this month, bulls appear to be mounting their first real defense in weeks.
For those who love a bargain, as well as a comeback story, you might not have to look a whole lot further than Sprouts. While the sell-off has been vicious, and the chart does not make for pleasant viewing, there are actually several reasons to consider dipping into the stock ahead of earnings. Here are the top three.
Reason #1: A Strong Track Record of Beating Expectations
First and foremost is the company’s earnings record. Over multiple quarters now, Sprouts has developed a reputation for consistently outperforming Wall Street’s forecasts on both revenue and earnings. In their most recent report, for example, at the end of July, their GAAP EPS landed a full 9% higher than the consensus, while revenue also came in hot for its second-highest print ever.
These kinds of numbers, as well as the consistent track record, have helped build investor confidence in management’s ability to navigate a volatile grocery and consumer environment. Whether it’s margin discipline, product mix optimization, or store-level efficiency, Sprouts has repeatedly proven its model works, even when broader retail peers have struggled.
This has made the recent sell-off all the more perplexing, given it doesn’t seem to have been driven by a whole lot more than some profit-taking that got out of hand. Heading into the upcoming earnings report, though, this means expectations are modest, and that works in the company’s favor. With its strong execution record, Sprouts doesn’t need a perfect print to reignite momentum.
Reason #2: Technicals Are Improving After a Steep Slide
The second reason to consider getting involved is the technical setup. After a steady decline since early summer, the setup is beginning to turn green. Sprouts’ RSI reading is near 20, and well below the 30 level that signals oversold conditions, suggesting that sellers may soon be exhausting their momentum.
Tuesday’s bounce from intraday lows marks the first convincing defense of support in weeks, and the stock has managed to hold that level since. The MACD line is also curling higher and looks set for a bullish crossover; another early signal that momentum could be shifting back toward buyers.
If the stock can hold above the key $100 level into next week, while attracting some pre-earnings buying, this week’s low could easily turn into a strong line of support.
Reason #3: Analysts Still See Big Upside
The final piece of the puzzle is the unwavering analyst support that Sprout commands. Despite the stock’s weakness, analysts are staying optimistic.
Just last week, the team at Evercore ISI maintained its Outperform rating on the company while giving it a fresh price target of $170. From where the stock was trading on Thursday, that’s pointing to a massive 60% upside target.
The Evercore note followed Sprouts’ recent announcement of a $1 billion share repurchase program, a strong vote of confidence from management in the company’s long-term outlook.
That scale of a buyback not only provides downside support but also signals that management views the current share price as undervalued.
Other firms have echoed this view, noting that Sprouts remains well-positioned to benefit from steady grocery demand, continued expansion of its private-label offerings, and the long-term shift toward health-conscious consumer spending.
Bullish Outlook for Q4
Of course, after a slide like that, the company has some work to do to win back investors' confidence. But with earnings approaching, oversold conditions in place, and analysts reiterating their confidence, Sprouts Farmers Market looks primed for a rebound.
The technical picture suggests the worst of the selling pressure may soon be over, while the company’s consistent history of outperforming expectations gives investors a clear reason to get excited. If shares can continue to hold above this week’s lows and momentum indicators confirm a reversal in the coming sessions, Sprouts could be setting up for a strong run into earnings and beyond.
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