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Whole Foods should recover: Credit Suisse adds to focus list

The Whole Foods box at a Whole Foods Market in San Francisco, California.
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The Whole Foods box at a Whole Foods Market in San Francisco, California.

The turnaround in Whole Foods Market could be coming, according to Credit Suisse, which added the grocery chain to its U.S. Focus List of top investment ideas Thursday.

Shares of Whole Foods Market initially spiked more than 1 percent before ending flat on the day.

While fiscal third-quarter earnings "provided little evidence that a turnaround is beginning to take hold," the food chain's strategy "makes sense and success could yield material upside," Credit Suisse analysts said in a note.

In June, Credit Suisse upgraded the stock to "outperform" and raised its price target to $40 a share. Shares of Whole Foods were about 9.5 percent lower for the year at just above $30 a share, as of midday Thursday.

Last Wednesday, Whole Foods gave a disappointing profit forecast and reported a fourth straight quarterly decline in same-store sales.

Almost a dozen analysts lowered their September 2016 estimates for the company the next day, according to FactSet. Also on that day, a report from The Washington Post said Whole Food's efforts to update an advertising slogan was recently rejected.

The Credit Suisse note on Thursday cited expectations that headline same-store sales have bottomed and pointed to a "robust start" to the firm's recently launched 365 grocery store chain, which offers lower prices in a smaller space than the traditional Whole Foods stores.

Other encouraging factors included "very strong" cost control and better management tone, which offset pressures from investor skepticism around the food retailer's turnaround, the note said.

CNBC's Sarah Whitten contributed to this report.