Melius downgrades Sprouts to Sell on traffic, margin risk

Melius Research downgraded Sprouts Farmers Market (SFM) to Sell from Hold with a price target of $70, down from $75. The firm sees risk to the company’s traffic and margins not meeting expectations. Amid constrained traffic, Sprouts’ growth algorithm is becoming more investment-driven, more margin-constrained, and “less durable” than what is priced into the shares, the analyst tells investors in a research note. The company also faces rising cost pressure across the fresh and produce categories, adds Melius.