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.
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Shares of Whole Foods Market closed at $30.76 yesterday.