3 Key Factors Left For Debate In The Amazon–Whole Foods Story

While Amazon.com, Inc. AMZN announced the acquisition of Whole Foods Market, Inc. WFM Friday, many investors started to question how Amazon would position itself in the grocery retail industry. After looking at and trying to answer these questions, UBS analyst Eric Sheridan maintains his Buy rating on Amazon with an $1100 price target.

3 Factors Left To Explore

1. Amazon’s Historic M&A strategy: History shows how management is very selective when deciding when to buy versus when to build. “We would point to Amazon's past acquisitions of Quidsi (Amazon Mom) and Zappos (Women's shoes) as similar examples of acquiring a business in an effort to improve position in specific categories,” Sheridan said (check out his track record).
2. Impact on Amazon Prime Membership and Increasing Wallet Share: "Given there is likely healthy overlap of current Prime members and Whole Foods customers, we believe the primary driver of this deal is squarely focused on driving greater wallet share of current Prime members and leveraging Whole Foods' physical presence a means of distribution (i.e. getting closer to the home), while potentially driving incremental Prime membership,” Sheridan noted.
3. The Unknowns: Sheridan and investors still have many unanswered questions regarding Amazon’s future M&A plans, and how management plans to operate Whole Foods stores.

Overall, Sheridan sees the deal as accretive and believes Amazon stock could potentially be worth as much as $1,565, in his bull case.

Related Links:

Amazon Will Buy Whole Foods For $13.7 Billion

Amazon's Acquisition Of Whole Foods Should Create Lower Prices, Offer Better Consumer Experience