Analyst: Check Out of These 3 Grocery Stocks

BMO cut its ratings on SFM, UNFI, and SPTN stocks

Andrea Kramer
Aug 2, 2019 at 2:34 PM
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The shares of Sprouts Farmers Market Inc (NASDAQ:SFM) are lower this afternoon, as traders pan the grocery concern's quarterly earnings report. In addition, analysts at J.P. Morgan Securities downgraded SFM to "neutral" from "overweight," and cut their price target to $19 from $22. Meanwhile, BMO Capital cut SFM stock to "underperform" from "market perform," and sliced its price target to $15 from $23. What's more, BMO also took aim at sector peers United Natural Foods Inc (NYSE:UNFI) and SpartanNash Co (NASDAQ:SPTN) amid an "increasingly challenging and rapidly changing" landscape.

Specifically, BMO cut both UNFI and SPTN stocks to "underperform" from "market perform," as well. The brokerage firm took a hatchet to its price targets, too; it halved its target on UNFI to $5, and cut its target on SPTN to $8 from $13. Both new targets represent serious downside from the equities' closing prices yesterday.

Sprouts Farmers Market stock was last seen 1.2% lower at $17.95. The stock has been in a channel of lower highs and lows since a massive bear gap in late December, and ultimately touched a nearly four-year low of $16.46 just yesterday.

Several short sellers are likely cheering today's negative earnings reaction. Short interest represents nearly 12% of SFM's total available float, or roughly eight sessions of trading, at the security's average daily volume.

United Natural Foods shares are down an even steeper 12.8% to trade at $8.14, and earlier fell as low as $7.60 -- territory not charted in 17 years. What's more, BMO's new price target of $5 represents another 38% drop from current levels, and a level UNFI hasn't explored since 2000.

As with SFM, several UNFI shorts are probably fired up today. Although the equity is on the short-sale restricted list, short interest represents nearly 20% of the stock's total available float, after surging 17.3% during the past two reporting periods.

Finally, SpartanNash stock is fresh off a nearly 14-year low of its own, bottoming at $9 earlier. The shares were last seen down 21.3% at $9.10, on pace for their worst session since November.

Against this backdrop, SPTN put options are running hotter than usual. While absolute volume is light at just 320 contracts, it represents 22 times the average intraday volume. Digging deeper, it appears bears may be buying to open the September 7.50 put, expecting SPTN stock to breach $7.50 by options expiration on Friday, Sept. 20.


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