Download whole foods market inc

July 30, 2017
NASDAQ: WFM
WHOLE FOODS MARKET INC
BUY
A+
A
A-
HOLD
B+
B
Annual Dividend Rate
$0.72
B-
C+
C
Annual Dividend Yield
1.72%
SELL
C-
D+
D
D-
Beta
0.84
WFM BUSINESS DESCRIPTION
Whole Foods Market, Inc. operates natural and
organic foods supermarkets. Its stores offers
produce, packaged goods, bulk, frozen, dairy, meat,
bakery, prepared foods, coffee, tea, beer, wine,
cheese, nutritional supplements, vitamins, body
care, pet foods, and household goods.
E
E-
F
Market Capitalization
$13.4 Billion
Sector: Consumer Non-Discretionary
Weekly Price: (US$)
E+
Sub-Industry: Food Retail
SMA (50)
BUY
RATING SINCE
TARGET PRICE
52-Week Range
$27.67-$43.84
02/28/2017
$54.84
Price as of 7/27/2017
$41.78
Source: S&P
SMA (100)
1 Year
2 Years
55
TARGET
PRICE
$54.84
TARGET
TARGETPRICE
PRICE$54.84
$54.84
TARGET
PRICE
$54.84
50
45
40
STOCK PERFORMANCE (%)
3 Mo.
Price Change
13.22
1 Yr.
24.19
3 Yr (Ann)
4.24
35
30
GROWTH (%)
Last Qtr
0.59
-11.67
-10.82
Revenues
Net Income
EPS
12 Mo.
1.35
-18.49
-14.69
RETURN ON EQUITY (%)
WFM
Q3 2017
11.22
Q3 2016
14.94
Q3 2015
14.91
3 Yr CAGR
4.50
-12.14
-7.27
Ind Avg
19.73
16.26
19.04
S&P 500
13.16
11.83
13.71
25
Rating History
HOLD
BUY
HOLD
BUY
Volume in Millions
200
100
2015
2016
0
2017
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
RECOMMENDATION
We rate WHOLE FOODS MARKET INC (WFM) a BUY. This is driven by some important positives, which we
believe should have a greater impact than any weaknesses, and should give investors a better performance
opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its
revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash
flow from operations, expanding profit margins and solid stock price performance. We feel its strengths
outweigh the fact that the company has had somewhat disappointing return on equity.
P/E COMPARISON
34.25
20.46
24.68
WFM
Ind Avg
S&P 500
EPS ANALYSIS¹ ($)
HIGHLIGHTS
The revenue growth came in higher than the industry average of 10.6%. Since the same quarter one year
prior, revenues slightly increased by 0.6%. This growth in revenue does not appear to have trickled down to
the company's bottom line, displayed by a decline in earnings per share.
The current debt-to-equity ratio, 0.30, is low and is below the industry average, implying that there has been
successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains
an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
2015
2016
Q3 0.33
Q2 0.31
Q1 0.30
Q4 0.28
Q3 0.37
Q2 0.44
Q1 0.46
Q4 0.16
Q3 0.43
Q2 0.44
Q1 0.46
Net operating cash flow has increased to $277.00 million or 46.56% when compared to the same quarter last
year. In addition, WHOLE FOODS MARKET INC has also vastly surpassed the industry average cash flow
growth rate of -17.01%.
2017
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental
data items.
37.05% is the gross profit margin for WHOLE FOODS MARKET INC which we consider to be strong. Regardless
of WFM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed
results of the gross profit margin, WFM's net profit margin of 2.84% compares favorably to the industry
average.
Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also
clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings
results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is
relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this
company displays justify these higher price levels.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
Report Date: July 30, 2017
PAGE 1
July 30, 2017
NASDAQ: WFM
WHOLE FOODS MARKET INC
Sector: Consumer Non-Discretionary Food Retail Source: S&P
Annual Dividend Rate
$0.72
Annual Dividend Yield
1.72%
PEER GROUP ANALYSIS
15%
Market Capitalization
$13.4 Billion
52-Week Range
$27.67-$43.84
Price as of 7/27/2017
$41.78
INDUSTRY ANALYSIS
REVENUE GROWTH AND EBITDA MARGIN*
SFM
NGVC
RA
VO
WMK
Food and staples retailing is the second largest segment of the consumer staples industry and includes
wholesale food distribution, grocery retaining, specialty food stores, and drugstores. Major players are
Wal-Mart Stores (WMT), CVS Health (CVS), Walgreens Boots Alliance (WBA), Sysco (SYY), Kroger (KR),
Supervalu (SVU), Andersons (ANDE), and Whole Foods Market (WFM), all of which possess unique
operational models. The industry is defensive and characterized by stable growth.
FA
SVU
Beta
0.84
BL
E
KR CASY
IMKTA
VLGEA
WFM
FA
B
RA
VO
LE
-7.5%
Food distributors maintain a specific product mix. Grocery stores are usually locally owned and have a fixed
client base. They record average annual revenue of $14 million. Supermarkets rely on a distribution network
to survive as they do not have enough space to store goods. Specialty stores use merchandising to attract
foot traffic. Drugstores focus on prescription customers and sell over-the-counter (OTC) drugs, health and
beauty aids, greeting cards, photo-finishing services, and general merchandise.
Demand for basic products remains stable regardless of economic conditions. Commodity pricing pressures
are being offset by corporate restructurings, which are helping to maintain margins. During periods of weak
growth, the industry tends to outperform.
UN
Revenue Growth (TTM)
SFS
1% ANDE
9%
EBITDA Margin (TTM)
Companies with higher EBITDA margins and
revenue growth rates are outperforming companies
with lower EBITDA margins and revenue growth
rates. Companies for this scatter plot have a market
capitalization between $192.7 Million and $21.5
Billion. Companies with NA or NM values do not
appear.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization.
The Food and Drug Administration (FDA) is the regulatory body for food manufacturers and drug retailers.
Regulation begins at the initial phases of development and continues through the manufacturing phase and
down the supply chain. Law makers are considering legislation to prohibit Canadian pharmacies from selling
prescription drugs to US mail-order customers in order to help domestic pharmacies. Prescription drugs
account for approximately 10% of the total US medical bill. Also, Medicare favors generic drugs and in doing
so influences industry participants.
In the past recession, consumer preference shifted towards cost-effective choices such as discount
groceries. Premium organic options benefit from the improved economic climate. Lifestyle drugs have been
hit hardest. However, baby boomers are now propelling growth in the drugstore segment, which is expected
to expand within the consumer staples industry. Increased pharmacy traffic is not necessarily a profit driver,
but it triggers impulse purchase of general merchandise and services.
15%
REVENUE GROWTH AND EARNINGS YIELD
SVU
SFM
The industry’s dependable revenue and low beta are commendable during an economic recession, but two
factors will curtail long-run performance, rising raw material costs and high valuations. Food and staples
retailing remains a stable business, but demand for food products is limited by the small annual US population
growth.
FA
WMK
RA
VO
NGVC
BL
E
PEER GROUP: Food & Staples Retailing
CASY
WFM
KR
VLGEA
IMKTA
UN
LE
1%
B
RA
VO
-7.5%
FA
Revenue Growth (TTM)
SFS
ANDE
9%
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -6.7% and
12.9%. Companies with NA or NM values do not
appear.
Ticker
WFM
ANDE
SVU
SFS
IMKTA
CASY
SFM
VLGEA
KR
NGVC
WMK
Recent
Company Name
Price ($)
WHOLE FOODS MARKET INC
41.78
ANDERSONS INC
34.45
SUPERVALU INC
3.58
SMART & FINAL STORES INC
8.70
INGLES MARKETS INC
29.90
CASEYS GENERAL STORES INC
108.22
SPROUTS FARMERS MARKET
24.26
VILLAGE SUPER MARKET
24.23
KROGER CO
23.95
NATURAL GROCERS VITAMIN CTGE 8.58
WEIS MARKETS INC
47.75
Market
Cap ($M)
13,378
977
961
644
421
4,172
3,336
245
21,491
193
1,284
Price/
Earnings
34.25
42.01
59.67
72.50
12.15
24.16
28.21
14.01
14.43
20.93
16.30
Net Sales
TTM ($M)
15,878.00
3,888.93
12,719.00
4,440.37
3,848.46
7,506.59
4,183.79
1,631.19
117,018.00
736.10
3,250.75
Net Income
TTM ($M)
388.00
23.20
615.00
9.32
49.83
177.49
124.39
24.57
1,582.00
9.20
78.87
The peer group comparison is based on Major Food Retail companies of comparable size.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
Report Date: July 30, 2017
PAGE 2
July 30, 2017
NASDAQ: WFM
WHOLE FOODS MARKET INC
Sector: Consumer Non-Discretionary Food Retail Source: S&P
Annual Dividend Rate
$0.72
Annual Dividend Yield
1.72%
COMPANY DESCRIPTION
Whole Foods Market, Inc. operates natural and organic
foods supermarkets. Its stores offers produce, packaged
goods, bulk, frozen, dairy, meat, bakery, prepared foods,
coffee, tea, beer, wine, cheese, nutritional supplements,
vitamins, body care, pet foods, and household goods. As
of March 8, 2017, the company operated approximately
460 stores in the United States, Canada, and the United
Kingdom. Whole Foods Market, Inc. was founded in 1978
and is headquartered in Austin, Texas.
WHOLE FOODS MARKET INC
550 Bowie Street
Austin, TX 78703
USA
Phone: 512-477-4455
Fax: 512-482-7000
http://www.wholefoodsmarket.com
Beta
0.84
Market Capitalization
$13.4 Billion
52-Week Range
$27.67-$43.84
Price as of 7/27/2017
$41.78
STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our
overall recommendation of WFM shares. It is provided in order to give you a deeper understanding of our
rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
valuation. Please refer to our Valuation section on page 5 for further information.
FACTOR
SCORE
3.0
Growth
out of 5 stars
weak
Measures the growth of both the company's income statement and
cash flow. On this factor, WFM has a growth score better than 50% of
the stocks we rate.
strong
4.0
Total Return
out of 5 stars
weak
Measures the historical price movement of the stock. The stock
performance of this company has beaten 70% of the companies we
cover.
strong
4.5
Efficiency
out of 5 stars
weak
Measures the strength and historic growth of a company's return on
invested capital. The company has generated more income per dollar of
capital than 80% of the companies we review.
strong
3.0
Price volatility
out of 5 stars
weak
Measures the volatility of the company's stock price historically. The
stock is less volatile than 50% of the stocks we monitor.
strong
5.0
Solvency
out of 5 stars
weak
Measures the solvency of the company based on several ratios. The
company is more solvent than 90% of the companies we analyze.
strong
3.5
Income
out of 5 stars
weak
Measures dividend yield and payouts to shareholders. The company's
dividend is higher than 60% of the companies we track.
strong
THESTREET RATINGS RESEARCH METHODOLOGY
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
perform against a general benchmark of the equities market and interest rates. While our model is
quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
Report Date: July 30, 2017
PAGE 3
July 30, 2017
NASDAQ: WFM
WHOLE FOODS MARKET INC
Sector: Consumer Non-Discretionary Food Retail Source: S&P
Annual Dividend Rate
$0.72
Annual Dividend Yield
1.72%
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
0.23
1.32 E
1.40 E
Q4 FY17
2017(E)
2018(E)
Beta
0.84
Market Capitalization
$13.4 Billion
52-Week Range
$27.67-$43.84
Price as of 7/27/2017
$41.78
FINANCIAL ANALYSIS
WHOLE FOODS MARKET INC's gross profit margin for the third quarter of its fiscal year 2017 is essentially
unchanged when compared to the same period a year ago. Even though sales increased, the net income has
decreased. WHOLE FOODS MARKET INC has average liquidity. Currently, the Quick Ratio is 1.03 which shows
that technically this company has the ability to cover short-term cash needs. The company's liquidity has
increased from the same period last year, indicating improving cash flow.
During the same period, stockholders' equity ("net worth") has increased by 8.57% from the same quarter last
year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face
financial difficulties in the near future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Net Sales ($mil)
EBITDA ($mil)
EBIT ($mil)
Net Income ($mil)
Q3 FY17
3,725.00
292.00
180.00
106.00
Q3 FY16
3,703.00
326.00
209.00
120.00
Q3 FY17
1,123.00
6,610.00
1,048.00
3,458.00
Q3 FY16
748.00
6,275.00
1,052.00
3,185.00
Q3 FY17
37.05%
7.83%
4.83%
2.40
5.86%
11.22%
Q3 FY16
37.89%
8.80%
5.64%
2.50
7.58%
14.94%
Q3 FY17
1.65
0.23
11.00
16.36
Q3 FY16
1.45
0.25
12.00
17.42
Q3 FY17
320
0.32
0.33
10.80
NA
8,202,854
Q3 FY16
319
0.27
0.37
9.99
NA
6,078,330
BALANCE SHEET
Cash & Equiv. ($mil)
Total Assets ($mil)
Total Debt ($mil)
Equity ($mil)
PROFITABILITY
Gross Profit Margin
EBITDA Margin
Operating Margin
Sales Turnover
Return on Assets
Return on Equity
DEBT
Current Ratio
Debt/Capital
Interest Expense
Interest Coverage
SHARE DATA
Shares outstanding (mil)
Div / share
EPS
Book value / share
Institutional Own %
Avg Daily Volume
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
Report Date: July 30, 2017
PAGE 4
July 30, 2017
NASDAQ: WFM
WHOLE FOODS MARKET INC
Sector: Consumer Non-Discretionary Food Retail Source: S&P
Annual Dividend Rate
$0.72
Annual Dividend Yield
1.72%
RATINGS HISTORY
Our rating for WHOLE FOODS MARKET INC has not
changed since 2/28/2017. As of 7/27/2017, the stock
was trading at a price of $41.78 which is 4.7% below
its 52-week high of $43.84 and 51.0% above its
52-week low of $27.67.
BUY: $30.67
BUY: $32.75
HOLD: $29.76
HOLD: $33.69
2 Year Chart
Price/Earnings
2016
2
3
To
Buy
Hold
Buy
Hold
Buy
Price reflects the closing price as of the date listed, if available
1
2
3
(as of 7/27/2017)
44.10% Buy - We believe that this stock has the
opportunity to appreciate and produce a total return of
more than 10% over the next 12 months.
25.50% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with
the risk involved too great to compensate for any
possible returns.
TheStreet Ratings
14 Wall Street, 15th Floor
New York, NY 10005
www.thestreet.com
Research Contact: 212-321-5381
Sales Contact: 866-321-8726
5
4
5
WFM 29.84
Peers 18.76
• Premium. A higher price-to-projected earnings ratio
than its peers can signify a more expensive stock
or higher future growth expectations.
• WFM is trading at a significant premium to its
peers.
Price/Book
1
2
3
4
Price/Sales
1
2
1
Price/CashFlow
5
3
4
5
3
4
5
discount
WFM 10.65
Peers 9.39
• Premium. The P/CF ratio, a stock’s price divided by
the company's cash flow from operations, is useful
for comparing companies with different capital
requirements or financing structures.
• WFM is trading at a premium to its peers.
Price to Earnings/Growth
1
2
3
premium
4
5
discount
WFM NM
Peers 2.22
• Neutral. The PEG ratio is the stock’s P/E divided by
the consensus estimate of long-term earnings
growth. Faster growth can justify higher price
multiples.
• WFM's negative PEG ratio makes this valuation
measure meaningless.
Earnings Growth
1
2
3
4
lower
5
higher
WFM -14.69
Peers 14.70
• Lower. Elevated earnings growth rates can lead to
capital appreciation and justify higher
price-to-earnings ratios.
• However, WFM is expected to significantly trail its
peers on the basis of its earnings growth rate.
Sales Growth
discount
WFM 0.84
Peers 0.52
• Premium. In the absence of P/E and P/B multiples,
the price-to-sales ratio can display the value
investors are placing on each dollar of sales.
• WFM is trading at a significant premium to its
industry.
2
premium
discount
WFM 3.87
Peers 3.92
• Average. A lower price-to-book ratio makes a stock
more attractive to investors seeking stocks with
lower market values per dollar of equity on the
balance sheet.
• WFM is trading at a valuation on par with its peers.
premium
30.40% Hold - We do not believe this stock offers
conclusive evidence to warrant the purchase or sale of
shares at this time and that its likelihood of positive total
return is roughly in balance with the risk of loss.
4
discount
premium
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS
Price as of 7/27/2017
$41.78
discount
premium
From
Hold
Buy
Hold
Buy
Buy
52-Week Range
$27.67-$43.84
WFM 34.25
Peers 20.46
• Premium. A higher P/E ratio than its peers can
signify a more expensive stock or higher growth
expectations.
• WFM is trading at a significant premium to its
peers.
Price/Projected Earnings
MOST RECENT RATINGS CHANGES
Date
Price
Action
2/28/17
$30.67
Upgrade
4/22/16
$29.76 Downgrade
3/2/16
$32.75
Upgrade
8/17/15
$33.69 Downgrade
7/27/15
$40.16 No Change
1
premium
$40
$35
Market Capitalization
$13.4 Billion
VALUATION
BUY. The current P/E ratio indicates a significant premium compared to an average of 20.46 for the Food &
Staples Retailing industry and a premium compared to the S&P 500 average of 24.68. To use another
comparison, its price-to-book ratio of 3.87 indicates a premium versus the S&P 500 average of 3.08 and a
discount versus the industry average of 3.92. The current price-to-sales ratio is well below the S&P 500
average, but above the industry average. The valuation analysis reveals that, WHOLE FOODS MARKET INC
seems to be trading at a premium to investment alternatives within the industry.
$45
$30
2015
Beta
0.84
1
2
3
lower
4
5
higher
WFM 1.35
Peers 6.84
• Lower. A sales growth rate that trails the industry
implies that a company is losing market share.
• WFM significantly trails its peers on the basis of
sales growth
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided
via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided
for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
qualified securities professional, before you make any investment. None of the information contained in this report constitutes,
or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a
determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of
the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the
investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at
http://www.thestreet.com/static/about/terms-of-use.html.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
Report Date: July 30, 2017
PAGE 5