Whole Foods Market (WFM): Sell Side Update

Whole Foods Market, Inc. (NASDAQ:WFM) reported its quarterly results which showed the company’s revenues falling short of analysts expectations, for the second quarter of fiscal’18 (FY18) earlier this week The market responded with a stock price slide of 9.74% in the first day of trading.

We revisit the company’s quarterly performance, and take a look into how the Street responded to these results.

The EPS figure, after a one-time costs adjustment, was 43 cents, falling ahead of analysts’ expectations by a small margin of 0.4 cents, with the analysts’ consensus estimate being 42.6 cents. This marked the fourth consecutive quarterly outperformance for the company. The figure grew 5 cents on a year-over-year (YoY) basis, from 38 cents adjusted EPS reported during the same period last year.

While the company was able to pass earnings estimates, it fell short for revenues. Quarterly revenue was reported at $3.65 billion, falling short of the consensus estimate by 1.55%. This is the second consecutive period in which the reported revenues performance fell short of analysts’ forecast. The YoY revenues growth was reported at 9.8%, with revenues at the same period last year hitting $3.32 billion.

How The Street Responded To The Quarterly Results
Sell-side analysts had bearish sentiments for the stock. While the company’s overall quarterly performance was average, the major disappointments for sell-side analysts were the lower-than-expected comparable sales, and the management’s announcement of a move toward the value-priced store concept. For analysts, these factors indicate tough times ahead for the company.

The majority of Street analysts continue to see the stock as Hold, following the revisions. 22 out of the 35 analysts providing coverage to the stock favor Hold, 11 recommend Buy, while only two suggest a Sell rating.

The consensus TP has fallen significantly following these downward revisions. It had a value close to $56 before the earnings release, falling since then to $49.54. The revised consensus TP indicates a strong return potential of 16.3%.

Imperial Capital LLC’s Mitchell B Pinheiro continues to be the most bullish, setting the highest TP of $65. On the other end of the spectrum is Scott A Mushkin of Wolfe Research, setting the lowest TP of $35.

Some of the major sell-side revisions are as follows:

1. A $4 fall in TP from Goldman Sachs’ Stephen Grambling to a revised TP of $47, with the analyst continuing to rate the stock as Neutral.

2. A $9 fall in TP from BMO Capital Markets’ Kelly Bania to a revised TP of $45, with the analyst continuing to rate the stock as Market Perform.

3. A $6 fall in TP from Morgan Stanley’s Vincent Sinisi to a revised TP of $56, with analyst continuing to rate the stock as Overweight/ In-Line

4. A $3 fall in TP from RBC Capital Markets’ William J Kirk to a revised TP of $51, with the analyst upgrading the stock from Sector Perform to Outperform.

5. A $12 fall in TP from SunTrust Robinson Humphrey’s David G Magee to a revised TP of $55, with the analyst continuing to rate the stock as Buy.

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