- JP Morgan says the market is too negative on Whole Foods (NASDAQ:WFMI), in their view. The stock over-compensates for risks, yet under-compensates for strengths. An "investment year" in 2007E is well-advertised, particularly with the Wild Oats acquisition. Some of WFMI's recent sales issues have been competitive; some have been other things (the market says 80%/20%; JPM says the opposite). Same store sales should accelerate with the reversion back to 17%+ EPS growth likely. Reiterates Overweight.
JPM thinks sales trends will prove better than the market anticipates for Q207E. They estimate 7.5% comps, lapping an 11.9% in Q2 of last year. The current quarter likely benefited from a slight Easter shift, which occurred during Q207 this year (was in Q306 last year); this should cosmetically add say 50 bps to current quarter comps (hurt Q2 of the prior year by 55 bps).
Last quarter, WFMI started the quarter off at 6.8% (first 5 weeks of last quarter's 16-week period and facing a 13.6% comparison); the company reported 7% for the quarter in total (against a 13% comparison). This implies that WFMI's comp got slightly better as the last quarter progressed. Of the 6 stores opened during the period, the firm has received feedback on four, and the new stores are in-line with expectations.
At 26.8x 2008E calendar P/E, WFMI trades below its mean premium to various peers. In fact, WFMI trades at 1.6x that of Safeway (SWY/UW) on 2008E, and its 5 year mean premium has been at nearly 3x that of SWY's P/E. Its trough to SWY has been 1.5x in last 5 years (its high has been 4.5-5x). They think WFMI is also inexpensive at a 7.2% OCF/EV yield, for a growth company. A 1.6% dividend yield and 1x LTM PF sales valuation are also supportive.
Notablecalls: Nothing really new here. Not actionable but good to know category.
JPM thinks sales trends will prove better than the market anticipates for Q207E. They estimate 7.5% comps, lapping an 11.9% in Q2 of last year. The current quarter likely benefited from a slight Easter shift, which occurred during Q207 this year (was in Q306 last year); this should cosmetically add say 50 bps to current quarter comps (hurt Q2 of the prior year by 55 bps).
Last quarter, WFMI started the quarter off at 6.8% (first 5 weeks of last quarter's 16-week period and facing a 13.6% comparison); the company reported 7% for the quarter in total (against a 13% comparison). This implies that WFMI's comp got slightly better as the last quarter progressed. Of the 6 stores opened during the period, the firm has received feedback on four, and the new stores are in-line with expectations.
At 26.8x 2008E calendar P/E, WFMI trades below its mean premium to various peers. In fact, WFMI trades at 1.6x that of Safeway (SWY/UW) on 2008E, and its 5 year mean premium has been at nearly 3x that of SWY's P/E. Its trough to SWY has been 1.5x in last 5 years (its high has been 4.5-5x). They think WFMI is also inexpensive at a 7.2% OCF/EV yield, for a growth company. A 1.6% dividend yield and 1x LTM PF sales valuation are also supportive.
Notablecalls: Nothing really new here. Not actionable but good to know category.
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