Fresh Market faces great expectations

As investors continue to display a hunger for the scarce stocks tied to the healthy-eating sector, North Carolina grocer Fresh Market faces great expectations ahead of Wednesday’s second-quarter report.

Shares of Fresh Market (US:TFM), which operates 116 stores in 21 states, fetch a top-shelf price. The stock — up 53% in 2012 — trades at 40 times consensus earnings estimates for 2013, according to FactSet.

That’s a wholesome premium even among Fresh Market’s high-growth brethren. Consider that Whole Foods Market (US:WFM)  trades at 34 times earnings estimates for the next 12 months, while Chipotle Mexican Grill (US:CMG) trades at a multiple of 29.

“The stock’s valuation certainly reflects very elevated expectations, so Fresh Market will have to continue to deliver,” said Walter Stackow, senior analyst at the investment firm Manning & Napier, which doesn’t own Fresh Market shares.

CompanyTicker symbolForward P/E2012 stock return (as of Aug. 27)Fresh MarketTFM40x53%Whole FoodsWFM34x39%Chipotle Mexican GrillCMG29x(13%)Monster BeverageMNST26x30%

There’s no doubt Fresh Market and Whole Foods Market are riding a shift in consumer habits. While traditional supermarket chains such as Supervalu (US:SVU) and Safeway(US:SWY) struggle, Fresh Market and Whole Foods are putting up impressive comparable-store-sales figures and pushing into new cities.

Fresh Market has said its aim is to create a “neighborhood grocer” atmosphere with an average store size that’s half the footprint of a traditional supermarket. Close to 66% of its sales are from such perishable items as fresh produce and prepared meals. Fresh Market also stocks its shelves with hard-to-find grocery and dairy items that command higher prices.

Investors have been feasting on Fresh Market shares ever since the 30-year-old company went public in November 2010. Based on total share return from the IPO offer price, Fresh Market’s deal ranks No. 4 among all U.S. initial public offerings from 2010 onward. The return: 180%.

With that kind of performance, there appears to be little room for error.

For the company’s fiscal year, Wall Street expects Fresh Market to exceed management’s own forecast of a profit between $1.28 and $1.34 a share on a gain of 4.5% to 6.5% in comparable-store sales. The analysts, meanwhile, are counting on Fresh Market to earn $1.36 a share on comparable-store-sales growth of 6.6%, FactSet figures show. The consensus earnings estimate for the second quarter is 27 cents a share on revenue of just over $308 million. The company’s quarterly report is due before Wednesday’s opening bell.

Source: http://goo.gl/pPfET