Why The Fresh Market (TFM) Was Downgraded

Story updated at 9:55 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Deutsche Bank downgraded The Fresh Market (TFM) to "hold" from "buy" Thursday, cutting its price target to $34 from $48.

The Fresh Market fell 5.1% to $32.61 in morning trading.

Analyst Karen Short wrote that bad weather could have a negative impact on sales and earnings.

Short wrote, "We are downgrading TFM to a hold for 3 reasons: 1) inclement weather could have materially impacted comps based on our channel checks so we are reducing 4Q and FY14 below consensus, 2) while weather has been widely discussed and misses should be expected, the reaction to GNC's miss/guidance makes us cautious that downside isn't fully priced in at TFM, 3) weakness in comps and EPS (potentially, partially, weather-related), coupled with weak NSP, could play into the Bear thesis that TFM is "structurally challenged." While we disagree with the Bears, we are concerned results might strengthen their argument, and, therefore, see additional downside risk."

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Separately, TheStreet Ratings team rates FRESH MARKET INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate FRESH MARKET INC (TFM) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, premium valuation and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 13.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Net operating cash flow has increased to $35.00 million or 48.82% when compared to the same quarter last year. In addition, FRESH MARKET INC has also vastly surpassed the industry average cash flow growth rate of -50.65%.
  • The net income growth from the same quarter one year ago has exceeded that of the Food & Staples Retailing industry average, but is less than that of the S&P 500. The net income increased by 1.6% when compared to the same quarter one year prior, going from $10.89 million to $11.06 million.
  • TFM's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 31.88%, which is also worse than the performance of the S&P 500 Index. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, TFM is still more expensive than most of the other companies in its industry.
  • You can view the full analysis from the report here: TFM Ratings Report

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