The Fresh Market's New CEO Could Be Difference Maker, Says Jefferies

• The Fresh Market Inc (NASDAQ: TFM) shares are down 41 percent year-to-date and are trading close to the lower end of their 52-week range of $18.70 - $42.12.
• Jefferies’ Mark Wiltamuth upgraded the company from Hold to Buy, while raising the price target from $26 to $29.
• While the company reported disappointing results and cut its guidance, the appointment of the new CEO removes uncertainly and introduces the potential for a turnaround, Wiltamuth said.

Analyst Mark Wiltamuth mentioned that The Fresh Market’s shares have plunged to “unsustainably low levels.” Following an eight-month search, Rick Anicetti, former Food Lion President & CEO, had been named as the new President and CEO of The Fresh Market.

Wiltamuth commented, “In our view, this removes uncertainty and sets the company up for a turnaround.” The company had recently reduced its guidance for 2015 by 15 percent. Wiltamuth added that the estimates for 2016 could be reduced as well, as the new CEO introduces corrective measures.

“Assuming TFM pursues price/margin investments, a temporary slowdown of store growth, and ad spending to emphasize fresh/organic positioning, we see an arc back to 12% EBITDA growth by 2017,” the Jefferies report stated.

The analyst said that even though the company had made mistakes and is being affected by competition, price threats by Whole Foods and the entry of lower priced Sprouts, sales could be turned around.

“TFM has healthy free cash flow ($46M), no debt, industry-leading ROIC, 12% store growth and we see turnaround potential,” Wiltamuth wrote, while adding that once this turnaround takes place, a “valuation recovery” can be expected.

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