Why Is Sprouts Farmers Market (SFM) Stock Falling Today?

On Thursday, shares of organic grocery chain Sprouts Farmers Market Inc. (NASDAQ:SFM) are falling, down almost 9% in midday trading following a downgrade at Morgan Stanley (NYSE:MS).

Analyst Vincent Sinisi downgraded SFM stock from Overweight to Equal Weight, though the firm reiterated its price target of $23. Sprouts is now trading at a 25x multiple on Sinisi’s 2018 earnings per share estimate, representing a 12-month high for SFM stock and a 25% premium to the food retail group that he covers, notes Benzinga.

Morgan Stanley remains positive on Sprouts, as the grocer is a strong natural and organic player, and was the only food retailer it covers with positive same-store sales. The firm “now believe[s] the shares are fairly valued relative to future growth potential,” it said in a note.

Additionally, Sprouts Chief Financial Officer Bradley Lukow said that the company’s first quarter experienced 300 basis points of deflation, with produce seeing double-digit deflation; Lukow was speaking at the Deutsche Bank (DE:DBKGn) dbAccess Global Consumer Conference.

And, digital grocery rival Amazon (NASDAQ:AMZN) announced this morning that it has expanded its Prime Now one- and two-hour delivery to Denver. This service includes delivery of grocery and fresh items from Sprouts.

Currently, SFM is a #2 (Buy) on the Zacks Rank, with a VGM score of ‘B.’

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