Whole Foods Cut to Neutral at Goldman Sachs

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.

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