Whole Foods Market (WFM): Mixed Signals Drive Estimate Cuts - BMO
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BMO Capital analyst, Kelly Bania, reiterated her Underperform rating on shares of Whole Foods Market (NASDAQ: WFM) after F4Q16 earnings were ahead of expectations but concerns about comp growth slowing drove her to cut estimates.
F17E EPS drops to $1.42 (from $1.49) and F18E EPS is now $1.38 ($1.53 prior). The $23 target price is now based on a 16-17x P/E on F2018E EPS.
Not all of the datapoints were dire though and some encouraging signs include
1) an improvement in items/basket (+1.6% in F4Q16)
2) an improvement in the quarter-to-date comp (-1.6% in Oct vs -2.6% in F4Q16)
3) a more confident tone in the ability to execute more targeted price investments given better customer/data analysis (including Nielsen data)
4) an expected F17 national launch of the loyalty program following a test in the Dallas market
5) strong progress against the company’s cost savings plan (over halfway towards the two-year $300MM expense reduction achieved)
6) a re-acceleration in marketing efforts is expected in F17 (including direct mail campaign during the holidays)
7) steadier sequential comps compared with peers despite the extremely deflationary food retail backdrop
Shares of Whole Foods Market closed at $28.51 yesterday.
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