'Whole Lot Of Competition' Makes Whole Foods A Sell At UBS

While Whole Foods Market, Inc. WFM has played a huge role in the shift toward organic, natural produce and a healthy lifestyle, it appears the company may have become a victim of their own success.

UBS has initiated coverage on Whole Foods with a Sell rating and a $25 price target, amid the several challenges the company is currently facing including significant competition from Trader Joe’s, Kroger Co KR and Sprouts Farmers Market Inc SFM.

Analyst Commentary

“We don’t think the shares have properly reflected that the days of the co. generating DD sales & EPS growth are likely over,” UBS said in its Thursday note. “Most consumable retailers are focusing on fresh and stepping up their game. This will continue to put pressure on WFM given its premium price points.”

Whole Foods products are on average, 13 percent higher than that of Sprouts and Kroger. To combat the competition, margins will likely move lower to become competitive to key items.

“We think WFM needs to move from a growth phase to an efficiency phase,” UBS said. “Its aim to save $300 million in costs is a start, but we think it needs to go further in revolutionizing its supply chain & structure. Plus, the entrepreneurial culture that served it well in its growth mode now needs to be more process-oriented. That can be a tough transition.”

Shares of Whole Foods Market were down 2.12 percent at $29.28 at publication time.

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Oppenheimer Weighs In On Sprouts Farmers As An 'In Play' Target __________ Image Credit: By Daniel Christensen - Own work, CC BY-SA 3.0, via Wikimedia Commons