Deutsche Bank Disappointed With Whole Foods Market, Inc. (WFM) Earnings

Deutsche Bank has come up with a report on the stock of Whole Foods Market, Inc. (NASDAQ:WFM), reiterating its Hold rating for it, while reducing the price target for the stock by $14 to a revised target price of $40. The revision of estimates came following the earnings release for the company after the close of market yesterday. The stock fell down significantly in after hours yesterday and in pre-market trade today, following the release of earnings. The stock was trading at a price of $41.70 at 8.30 AM EDT, 12.62% lower than what the stock closed at yesterday.

Earnings Review
The company reported adjusted EPS of 43 cents for the quarter, beating analysts estimate for the metric for the fourth consecutive quarter. The margin for the beat this quarter was 0.94%, with the analysts consensus estimate for the metric having a value of 42.6 cents. On a Year-over-Year (YoY) basis the earnings grew by 5 cents, with the figure for the same quarter last year being reported at 38 cents.

The company’s revenues on the other hand fell short of analysts’ estimates, with revenues of $3.65 billion reported for the quarter being 1.55% lower than analysts consensus estimate. It is the second consecutive quarterly revenue miss for the company. On a YoY basis, revenues for the company grew by 9.8% with revenues for the same quarter last year being reported at $3.32 billion.

How Deutsche Bank Sees The Quarterly Results
Deutsche bank starts off its outlook by appreciating the fact that the adjusted EPS for the company was in line with its estimates. The firm however sees a major weakness in the results, as the comparable sales for the quarter stood lower than the firm’s estimates and that of the consensus.

The other concern identified by the firm’s analyst, that led to him to revise his outlook for the stock, was the introduction of new value-priced store concept. The analyst mentions in the report that while it is an appreciable factor that the management understands the need to evolve, and historical trends reveal that the company has done well through its lower cost stores, there are many factors that raise doubts about the effectiveness of the move.

He mentions that the very fact that the management is making this move raises doubts about the legacy banner. Furthermore, the overall margins could come under pressure with the move, while the risk factor, that the move may or may not pay off, continues to exist.

The revision in target price came in following the downward revision for earnings estimates for FY16. The firm now estimates the EPS for the year to be at $1.84, and the target price of $40 assumes a multiple of 8.7x for the EV/EBITDA ratio for FY16.

How The Overall Street Sees The Stock Following The Earnings Release
The overall sell side has remained Neutral about the stock, with 21 out of the 35 analysts listed on Bloomberg, that provide coverage to the stock, rating it as a Hold, 12 rating it as a Buy, while only two analysts rate it a Sell.

The mean target price for the stock has dipped significantly following the revisions that took place after the earnings release. The revised mean target price now has a value of $49.71 and indicates a return potential of 4.2%.

The highest target price for the stock given by any street analyst of $65 is given by Mitchell B Pinheiro of Imperial Capital LLC, while the lowest target price of $35 is given by Scott A Mushkin of Wolfe Research.

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