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Zacks Investment Ideas feature highlights: Sprouts Farmers Market and The Kroger Co

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For Immediate Release

Chicago, IL – March 8, 2022 – Today, Zacks Investment Ideas feature highlights Sprouts Farmers Market, Inc. (SFM - Free Report) and The Kroger Co. (KR - Free Report) .

How to Gauge the Stock Market's Health

To the average investor, the market is represented by one of the leading market indices such as the S&P 500. While I don’t necessarily agree with this representation, there are a few reasons why we need to carefully evaluate these indices.

First, we need to be aware of the fact that the S&P 500 is a market-capitalization-weighted index. This weighting method gives a higher percentage allocation to companies with the largest market caps.

We’ve all heard in recent years how the top technology companies account for a large percentage of the major indices. For example, right now the top ten companies make up a bit less than 30% of the index’s weighting. Apple alone accounts for nearly 7%. Naturally, most companies are not well-represented using this method.  

Second, when these indices top out and either correct or enter a more significant (bear market) decline, three out of four stocks tend to follow the market’s overall trend and will also decline in price. Moreover, growth names can drop three or even four times as much as the major market indices, and some of them may never recover. Paying attention to the overall direction of the market along with trend reversals can give us a sense of what the future may bring.

We’re seeing this play out this year as the major indices are in correction mode, but many growth and technology names have suffered substantially larger drawdowns. The truth is that these types of corrections are normal and necessary to clean up some of the prior excess gains that took place in certain pockets of the market. Instead of riding these names all the way down in the hopes of a reversal, it’s a much better idea to identify the leaders in the current market environment.

It's no secret that energy has been one of the leaders this year. But what else has been working?

Consumer staples have been holding up well, with many individual companies in the green as we move through March. Let’s take a look at two grocery chains that have surged this year on the back of better-than-expected earnings results.

Sprouts Farmers Market, Inc.

Sprouts Farmers Market provides natural and organic food products primarily in the United States. SFM offers fresh produce, meats, seafood, dairy, cheeses, alcohol, vitamins, and other supplements. The company operates more than 370 stores in 23 states. Sprouts Farmers Market was founded in 2002 and is headquartered in Phenix, AZ.

SFM is positioning itself for further growth as the natural foods grocer opened 12 new stores along with one relocation last year. The company plans to open between 15 and 20 stores in 2022. SFM has invested heavily to improve operational efficiencies, highlighted by its Fresh Item Management Technology which deploys computer-assisted ordering methods.

A Zacks #2 stock (Buy), SFM has exceeded earnings estimates in each of the past ten quarters. The organic foods retailer maintained its surprise streak when it recently reported Q4 EPS last month of $0.32, a +3.23% surprise over consensus estimates. SFM has delivered a trailing four-quarter average earnings surprise of +17.92%, supporting the stock’s nearly 44% advance in the past year.

Analysts covering SFM have increased their EPS estimates for the current year by 4.76% in the past 60 days. The Zacks Consensus Estimate now stands at $2.20, reflecting potential growth of 4.8% relative to last year.

The Kroger Co.

One of the world’s largest food retailers, Kroger operates combination food and drug stores, marketplace stores, multi-department stores, and price impact warehouses. The company offers natural and organic foods including fresh produce, seafood, meats, dairy, and baked goods. Its marketplace also provides pharmacy, health and beauty care departments, and apparel. KR operates over 2,700 retail food stores in 35 states and the District of Columbia. Kroger was founded in 1883 and is headquartered in Cincinnati, OH.

KR has strung together a noteworthy history of positive earnings surprises, surpassing estimates in each of the past nine quarters. The food retailer most recently reported Q4 EPS just last week of $0.91, a +24.66% surprise over the $0.73 consensus. The company has posted an average earnings surprise of +22.07% over the past four quarters, aiding the stock’s 71.23% return in the past year.

What the Zacks Model Reveals

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have seen positive earnings estimate revision activity. The idea behind the proprietary technique is that the more recent information regarding upcoming earnings can give investors a leg up during earnings season.

The technique has proven to be quite useful in predicting positive surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.

KR has a Zacks Rank #3 and a +4.62% Earnings ESP for the current quarter. Another beat may be in the cards when the company reports its Q1 results in June.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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