Is Whole Foods Market, Inc. (WFM) Starting to Rot?

Is Whole Foods Market, Inc. (WFM) Starting to Rot?

Whole Foods Market, Inc. (NASDAQ:WFM) is an Austin, Texas based American supermarket chain that specializes in natural and organic foods. It first opened on September 20, 1980 and now has hundreds of stores all over the U.S., Canada, and the UK. The company’s shares went down by almost 19% on Wednesday, May 7 to approximately $38.93 after they disclosed weak earnings, hindered same store sales production, and a distinctly lower earnings forecast.

Correspondingly, if the stock cultivates this sharp loss, it will ultimately open considerably under its prior 52-week low of $45.43.

Whole Foods Market, Inc. (NASDAQ:WFM) stock has significantly dropped in value due to broad new competition with lower prices from mainstream vendors like Safeway Inc. (NYSE:SWY) and The Kroger Co. (NYSE:KR) as well as smaller, more directly related grocers like, Sprouts Farmers Market Inc (NASDAQ:SFM) and The Fresh Market Inc (NASDAQ:TFM).

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“There’s certainly a very rich competitive system out there right now. We recognize that. No one’s going to give us any business,” said Co-Chief Executive Walter Robb. As a result, the company has planned to grow into new areas like the suburbs, smaller cities, and poorer areas, as well as to attract customers by lowering its high prices and profit margins.

Shares of Whole Foods Market, Inc. (NASDAQ:WFM) opened at $39.30 on Wednesday, May 7. The company has a 1-year high of $65.59 and a 1-year low of $37.31. The stock’s daily moving average is $38.40 and has a 50-day moving average of $50.70. The market cap for Whole Foods is $14.48 billion and its P/E ratio is 25.95.

Whole Foods Market, Inc. (NASDAQ:WFM) released its latest quarterly earnings data on Tuesday, May 6 where they reported $0.38 earnings per share. During the same quarter last year, the company posted $0.76 earnings per share. The company had earnings of $3.32 billion for the quarter, compared to the consensus estimate of $3.34 billion. The corporation’s quarterly proceeds were up 9.7% on a year-over-year basis. On average, analysts predict that Whole Foods will post $1.61 earnings per share for the current fiscal year.

One day before the report was released, on May 5, Wolf Research analyst Scott Mushkin downgraded his rating from ‘outperform’ to ‘underperform’ explaining “the problem is that a lot of companies understand that this ‘pure foods’ movement has gone very mainstream so a lot of products that were once available at Whole Foods Market, Inc. (NASDAQ:WFM) and hard to get at other places are now more widely available.” Mushkin has a +3.7% average return over the S&P 500 (INDEXSP:.INX) and a 50% success rate according to TipRanks.

On May 7, Cantor Fitzgerald analyst Ajay Jain also lowered his rating from HOLD to SELL and dropped his price target from $48 to $38. He noted that “virtually all of the metrics in Whole Foods Market, Inc. (NASDAQ:WFM)’ latest earnings were materially worse than [his] expectations.” Jain has a +1.3% average return over the S&P 500 and a 45% success rate.

Separately, on May 7 Goldman Sachs analyst Stephen Grambling maintained a neutral rating and reduced his price target from $55 to $48. He explained that “the renewed focus on price may lure back aspirational consumers, but [he] believe[s] this strategy comes with the added risk of losing the core customer if service levels are reduced to fund these price investments.” Grambling has a -1.3% average return over the S&P 500 (INDEXSP:.INX) and a 48% success rate.

Also on May 7, Argus Research analyst Chris Graja upgraded his rating from HOLD to BUY with a $48 price target. He justified  his rating by arguing, “despite management’s initiatives to lower prices, [he] believe[s] that a 12% growth rate remains achievable and an attractive driver of valuation… [He] expect[s] comparable-store sales to grow amid increasing demand for natural and organic foods as the U.S. population ages and becomes more health conscious.” Graja has a -5.8% average return over the S&P 500 and a 25% success rate.

Whole Foods Market, Inc. (NASDAQ:WFM) currently has an analyst consensus of HOLD.

Carly Forster writes articles on stock market news. She can be contacted at [email protected]

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