For Beaten Down Whole Foods, Any Sign Of Progress Could Yield Material Upside

Credit Suisse maintains its Outperform rating on Whole Foods Market, Inc. WFM despite weaker sales trends led to a quarterly revenue miss and lowering of the full-year outlook.

Whole Foods reported first-quarter adjusted EPS of $0.39, in line with consensus. But, comps were down 2.4 percent versus consensus’ -1.8 percent estimate. The company said it will close nine stores in the second quarter as it abandons its goal to open 1,200-plus stores.

Whole Foods also slashed fiscal-year 2017 guidance and now expects comps of -2.5 percent or better (-2.0 percent to flat previously) and EPS of $1.33 ($1.42 previously).

The brokerage noted that comps failed to improve sequentially and actually got worse in the first three weeks of the company’s second quarter (down 3.2 percent).

Rating And Justification

“We are maintaining our Outperform rating, as we continue to see value in the brand, believe there is a path for improved performance over time (especially with today's news of accelerated strategic change), and like the stock's risk/reward,” analyst Edward Kelly wrote in a note.

Kelly, however, acknowledged that the progress of the turnaround is slower than his expectation even though industry weakness is certainly acting as a roadblock.

As such, the analyst lowered its target price to $36 from $40, saying that downside looks to be supported by valuation and potential activist/M&A interest.

“[A]ny sign of progress would yield material upside,” Kelly added.

At last check, shares of Whole Foods rose 2.05 percent to $29.90.