Sprouts touted as a 'buy' as Whole Foods slammed as 'victim of its own success'

A Whole Foods employee stocks produce in Oakland, Calif. 
David Paul Morris | Bloomberg | Getty Images

A slew of grocery stocks were the subject of investment ratings actions today by Wall Street firms, including a downbeat call on Whole Foods Market and a more upbeat outlook for its rival Sprouts Farmers Market.

UBS initiated a "sell" rating on organic and natural foods retailer Whole Foods, saying "we now see it being the victim of its own success."

Shares of Whole Foods fell 2.4 percent, or 72 cents, to $29.20 by market close Thursday. UBS set a 12-month price target of $25 on the stock. The stock has fallen nearly 5 percent so far this year.

Also Thursday, UBS initiated a "buy" rating on Sprouts and a 12-month price target of $27. The stock was up just over 1 percent, or 25 cents, to $23.02 in afternoon trading.

UBS said in a research note it believes Sprouts, an Arizona-based chain, can "coexist with emerging low-cost competitors over time," including Trader Joe's and probably Aldi.

Yet UBS contends that competitive conditions are intensifying for Whole Foods, making the Texas-based chain perhaps more vulnerable.

"We don't think the [Whole Foods] shares have properly reflected that the days of the company generating double-digit sales and EPS growth are likely over, at last for the foreseeable future," UBS said.

UBS contends that Whole Foods "needs to move from a growth phase to an efficiency phase. Plus, the entrepreneurial culture that served it well in its growth mode now needs to be more process-oriented. That can be a tough transition."

Separately, UBS initiated a "neutral" rating on Kroger and a 12-month target price of $32. The stock closed up 30 cents, or 1 percent, to $29.26.

According to UBS, Kroger has "a competitive edge in understanding evolving consumer behavior" although more competition and uncertainty means the stock is "fairly valued at current levels."

Elsewhere, RBC Capital upgraded Kroger and Supervalu to "outperform" investment ratings from sector perform.

"The fears surrounding Kroger appear overstated," RBC said in a note about the Ohio-based chain. "While competitive activity remains high, we believe a return to food inflation and Kroger's competitive advantages will re-emerge." RBC set a 12-month price target on Kroger of $37.

Finally, RBC said it believes Supervalu's retail operations should improve with the end of the deflationary environment. It also sees upside from the Minnesota-based retailer's wholesale unit, improving macro conditions as well as value in the company's real estate portfolio.

Supervalu stock closed the day up 36 cents, or 10.78 percent, to $3.70 a share.