Whole Foods Market (WFM): Survey Reaffirms BMO's $23 Target Price

BMO Capital analyst, Kelly Bania, reiterated her Underperform rating on shares of Whole Foods Market (NASDAQ: WFM). Comps could remain weak and volatile due to ongoing competitive pressures, which suggests risk to WFM’s premium valuation (now 21x F17 EPS vs the market/S&P at 16x). She forecasts F3Q16 comps of -2.5% (vs. Consensus at -2.3%), which suggests a modest improvement from the -3.0% in F2Q16 but no material change from the quarter-to-date/first two week trend reported at -2.6%. Given easier comparisons, the analyst forecasts an improvement of comps to -1% in F4Q16. Key takeaways from our Dirty Dozen survey include:

1) no material change in survey respondents’ self-reported traffic trends

2) no material chance in price perception

3) no meaningful change in digital coupon use (7% of respondents have used a digital coupon as of July 2016, up from 5% in April 2016 and 11% of respondents have the digital app as of July, up from 8% in April)

4) no acceleration in usage of Instacart (remains around 3% of respondents, though satisfaction rates w/ Instacart remain very high)

5) ~7% of all respondents think that the recent FDA warning letter affected their decision to shop at Whole Foods (27% of respondents were aware of the FDA warning letter made public on 6/8/16 and only 26% of those that noticed it believe it impacted their shopping behavior at Whole Foods). On the positive side, in-store customer satisfaction remains steady despite cost-cutting efforts.

The price target of $23 implies a 32% reduction from the current share price.

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 $33.72 yesterday.

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