Current Valuation Puts a Floor Under Whole Foods Market (WFM) - RBC

Whole Foods reported adjusted 4Q’15 EPS of $0.16 (adj. $0.30), compared to consensus estimate of $0.34. Comparable same store sales declined (-2.1%) against positive consensus expectations of 0.8%. To cushion the blow management also announced a $1 billion stock buyback, dividend increase and capital structure plan.

William Kirk from RBC Capital believes "increased spending is the only way to combat competitive headwinds " as he reduces his FY'16 numbers. The same store sales comp goes to -0.6% (from +2.0%) and EPS drops to $1.58 (from $1.83); a 17% revision to earnings. The Company guided to net sales growth of 3% - 5% (cons 7.5%) and square footage growth of >7%. FY16 implied comp guidance is -2% to 0% (cons +2%).

However, lower profits may be already built into the price. "Conventional grocers have been a major headwind to comparable store sales, but Whole Foods' valuation (~7.5x EV/NTM EBITDA) is already consistent with that segment. We believe this, combined with low near-term expectations, puts a floor on WFM."

No change to Outperform rating but the price target drops to $37 from $46.

For an analyst ratings summary and ratings history on Whole Foods Market click here. For more ratings news on Whole Foods Market click here.

Shares of Whole Foods Market closed at $30.76 yesterday.

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