NEW YORK (TheStreet) -- The shares of Whole Foods (WFM) are sinking and hit a new 52-week low after the company reported weaker than expected results and provided lower than expected profit guidance. Several analysts downgraded the stock in the wake of the report, while natural grocery peers and makers of organic foods are sliding this morning as well.
WHAT'S NEW: Whole Foods reported Q3 earning per share of 43c, versus the consensus outlook of 45c. The company's revenue was slightly lower than expected, while its sales at comparative stores rose 1.3%. Moreover, the supermarket owner predicted that its Q4 EPS would come in at 34c-35c, versus the consensus outlook of 45c.
ANALYST REACTION: Morgan Stanley analyst Vincent Sinisi downgraded the stock to Equal Weight from Overweight, saying the company's medium term outlook has deteriorated, partly due to its decelerating comps and lower than expected gross margins. Additionally, Whole Foods' newer initiatives are showing less momentum than expected, said the analyst, who set a $37 price target on the shares. The stock was also downgraded this morning by analysts at Canaccord, Sterne Agee CRT and Wedbush. Whole Foods' Q3 comparative sales and margins came in below expectations, according to Piper Jaffray analyst Sean Naughton. The company will have trouble increasing its earnings in fiscal 2016, since it is reducing its prices, opening new, smaller stores, facing increased competition and maintaining its previous square footage growth rate, the analyst stated. Until Whole Foods' comp sales trends stabilize, the shares will have trouble rising, predicted Naughton, who cut his price target on the name to $34 from $45 and kept a Neutral rating on the shares. Taking a more bullish perspective was RBC Capital analyst William Kirk. Although the supermarket owner's comp growth will probably remain in the low single digit percentage levels for some time, they will probably be lifted by its new stores in the longer term ,the analyst stated. The stock's valuation is compelling in the wake of the results, added the analyst ,who kept a $46 price target and Outperform rating on the shares. Meanwhile, SunTrust analyst David Magee recommended buying the shares on weakness, saying that the company's results were dragged down by temporary factors, while the performance of its new stores is "encouraging." If Whole Foods' sales do rebound, the stock will jump, added the analyst.
WHAT'S NOTABLE: Whole Foods' results will probably cause the shares of organic food distributor United Natural Foods(UNFI) - Get Report to drop, Piper's Naughton believes. The stock has dropped over the last two weeks because the company has lost contracts with some of its top retail partners, the analyst added. He likes United Natural at current levels.
OTHERS TO WATCH: Other publicly traded natural and organic grocers include The Fresh Market (TFM) , Fairway Group (FWM) and Sprouts Farmers Markets(SFM) - Get Report. Hain Celestial(HAIN) - Get Report, like United Natural , manufactures organic and natural products.
PRICE ACTION: In morning trading, Whole Foods sank 11% to $36.33, while United Natural fell 3%, Hain slid 0.6%, Sprouts slipped 2.7%, Fresh Market dropped 2.6% and Natural Grocers by Vitamin Cottage(NGVC) - Get Report declined 3%.
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