Bear Stearns comments on Whole Foods (NASDAQ:WFMI) saying they believe consensus EPS for 2007 remains at risk. By their estimates, the 2007 EPS of $1.66 ($0.06 above our est.) implies WFMI will realize margin expansion despite a planned acceleration in store openings combined with the prospect of moderating comp. Firm's $1.60 est assumes 20% sales growth (on 9.2% comp store sales) and a flat operating margin of 5.6%. 3Q06 $0.34 EPS estimate and 11.1% comp are in line with consensus.
Believes WFMI has benefited from strong macro factors that lessened price consciousness and increased aspirational spending. However, compelling evidence suggests all segments of consumer spectrum are moderating spending. Firm remains most concerned over the broader implications of a decelerating Target comp and the sustained traffic erosion occurring at most casual diners, which bodes poorly for WFMI customer base, in their opinion.
The premium valuation exposes stock price to further pressure as sales and earnings growth appears poised to decelerate. Current valuation ignores several risks (moderating mid- to high-end consumer, likelihood of a comp deceleration, gross margin and competitive pressures.) Finally, dramatic growth in foodservice has changed underlying business model, increasing the exposure to cyclical factors while adding operational complexity. Maintains Underperform.
Notablecalls: I like this call. I believe WFMI will end up lower today.
Believes WFMI has benefited from strong macro factors that lessened price consciousness and increased aspirational spending. However, compelling evidence suggests all segments of consumer spectrum are moderating spending. Firm remains most concerned over the broader implications of a decelerating Target comp and the sustained traffic erosion occurring at most casual diners, which bodes poorly for WFMI customer base, in their opinion.
The premium valuation exposes stock price to further pressure as sales and earnings growth appears poised to decelerate. Current valuation ignores several risks (moderating mid- to high-end consumer, likelihood of a comp deceleration, gross margin and competitive pressures.) Finally, dramatic growth in foodservice has changed underlying business model, increasing the exposure to cyclical factors while adding operational complexity. Maintains Underperform.
Notablecalls: I like this call. I believe WFMI will end up lower today.
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