This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Whole Foods Cut to Neutral at Goldman Sachs

Stocks in this article: WFM

NEW YORK (TheStreet) - Shares of Whole Foods Market (WFM) were in the black on Friday despite a new downgrade by Goldman Sachs and a rough post-earnings trading session the day before.

Goldman analyst Stephen Grambling took Whole Foods off the investment firm's "Americas Buy List" and downgraded the stock to "neutral" on Friday.

Following market close on Wednesday, Whole Foods reported fourth-quarter and full-year earnings of $121 million, or 32 cents a share, and $551 million, or $1.47 a share, respectively.

While quarterly earnings marginally beat consensus estimates, investors immediately honed in on the specialty food grocer's comparable store sales growth of 5.9% for the quarter and identical stores sales, which excludes five relocated stores and two store expansions, of 5.5%. Both growth rates were the lowest of its fiscal year 2013. Investors were also concerned with the company's tapered sales growth outlook for its fiscal year 2014.

"We are downgrading WFM to Neutral from Buy following weaker than anticipated 4Q top-line trends and management's lowered guidance," Grambling wrote, in a note released on Friday. "In our view, WFM remains well positioned as a secular share gainer with opportunities for continued store growth and margin expansion. However, with shares trading at 34X our downwardly revised, but above management guidance, [next 12 months] EPS estimate and 0.5% downside to our revised price target, we believe a neutral rating is appropriate and see better opportunities elsewhere in our coverage."

Whole Foods was added to Goldman's Buy List on Nov. 20, 2012. Shares have risen 23% compared to the S&P 500 rise of 26%, the note says. Whole Foods shares plunged 11% on Thursday following softer-than-expected fourth-quarter results. The stock was rising 1.5% to $58.10 on Friday.

Grambling also tweaked his earnings estimates. He now expects the specialty grocer to earn $1.71 a share in fiscal 2014, down 8 cents, and $2.03 a share, down 16 cents, in 2015. Consensus estimates call for earnings of $1.69 a share and $1.99 a share, respectively. He lowered his 12-month price target by $9 to $66.

"We are incrementally concerned about the comp trajectory given it has recently deviated from specialty peers, distributors and manufacturers, suggesting the macro [environment] is not the sole driver of softer trends," he wrote.

"We still view WFM as a leader in the rapidly growing wellness segment of food retail, but softer near-term trends coupled with a premium valuation leave modest downside to our price target," Grambling writes.

Grambling's more cautious outlook on the stock contradicts other analysts that viewed Thursday share decline as a buying opportunity.

"As we see nothing structurally broken, we recommend buying, especially on any weakness in reaction to the comp shortfall," Jefferies analyst Mark Wiltamuth wrote in a note released on Thursday. He rates the company "buy."

-- Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs