Tuesday, October 21, 2008

Whole Foods (NASDAQ:WFMI): Downgraded to Underperform with a $9.50 tgt - Jefferies

Jefferies is out with a pretty significant negative call on Whole Foods (NASDAQ:WFMI) lowering their tgt to Underperform from Buy while lowering their tgt to $9.50 from $23.

The macro climate, always the greatest risk with WFMI, has worsened measurably in the five weeks since the firm launched coverage and now looks to be overwhelming the company's ability to drive even flat comps in 4Q08 and FY09. They have lowered their estimates, accordingly, as increased reliance on the macros (~50% correlation with employment) and near total lack of visibility on consumer spending or WFMI's demand elasticity leave them unable to recommend ownership of the shares.

Jeffco has lowered FY09 EPS estimate to $0.85, their prior worst-case scenario. They now forecast FY09 comps of -2.3% and 9 bps of margin contraction on related de-leveraging as they anticipate a steep fall off in spending by Whole Foods' consumers who are under mounting pressure from declining asset prices and falling disposable income.

The company's balance sheet is a growing concern, especially in the near term. Whole Foods had $25 million in cash-on-hand and approximately $135 million in availability on its credit lines as of 3Q. Firm notes they are unable to predict with accuracy the ability of Whole Foods to raise cash or reduce capital spending (lease adjustments/cancellations, supplier support etc.), but the issue, especially in a highly unsettled market and with no assurance from the company, is enough to make them negative on the stock, especially in the near-term.

Notablecalls: Jeffco's $9.50 tgt is bound to generate heavy selling interest in the name, I suspect.

I see the stock down 10%+ today.


lowly habitat said...

this helpful franchise needs a break!

FeirFactor said...

Total capitulation. Buy, $23 target, to Sell, $9.50 target in 5 weeks. Lowering 2009 EPS to worst case scenario. The world is coming to an end! Head for the hills!