Morgan Stanley Bullish On Whole Foods

In a recent report, Morgan Stanley analysts took and in-depth look at Whole Foods Market, Inc. WFM. Despite increased competition from both new specialty stores and traditional supermarkets, analysts are bullish on Whole Foods and forecast positive earnings growth, improving margins and increasing sales in 2015.

Key initiatives

According to analysts, six early-stage operational initiatives will contribute to earnings growth for Whole Foods in 2015:

1. An acceleration in new store growth will lead to a nearly 10 percent annual increase in store square footage versus previous growth rates of 5 to 8 percent.
2. About 70 percent of Whole Foods stores that are 10 years or older will be refreshed/remodeled in 2015.
3. Value initiatives will increase volume in high-velocity items and introduce new, lower-price alternatives.
4. The loyalty card program currently used in only 11 stores will be expanded, potentially nationwide.
5. The company’s first national advertising campaign will increase awareness and differentiate the Whole Foods brand.
6. Digital initiatives such as pick-up/delivery via Instacart, the Whole Foods app, and acceptance of Apple Pay will increase convenience and appeal to tech-savvy customers.

Projections

Morgan Stanley analyst Vincent Sinisi predicts a decline in gross margins for Whole Foods in 2015, but he believes that the company will continue to grow gross profit dollars. “While potential for near-term volatility remains, we believe initiatives at WFM can lead to a positive inflection in 2015 and drive continued long-term market share gains."

Sinisi projects a 5.5 percent growth in same-store sales in 2015, higher than consensus projections of 4.5 percent growth.

Morgan Stanley has a base-case price target of $50 for Whole Foods stock.