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June's Food Fight: To Whom Go the Spoils?

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Part 3
June's Food Fight: To Whom Go the Spoils? PART 3 OF 5

Whole Foods’ Jump—After a 3-Year Tumble

Whole Foods makes a comeback

Whole Foods Market (WFM) was the only food retail stock to stay positive in June 2017, gaining 20% during the month. WFM is now trading at $42.01 (as of July 6), which is 4.4% below its 52-week high price, and has gained a whopping 36% YTD (year-to-date). This compares to the stock’s 45% decline between 2014 and 2016.

Whole Foods&#8217; Jump—After a 3-Year Tumble

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Valuations

Needless to say, the company’s valuations have skyrocketed this year. It’s now trading at a one-year forward PE (price-to-earnings) ratio of 31.8x, touching its 52-week high valuation of 32.8x soon after the Amazon.com (AMZN) deal.

Whole Foods is the most expensive stock among major supermarkets and big-box retailers. Kroger (KR) and Supervalu (SVU) operate at significant discounts to WFM, trading at NTM (next-12-month) earnings multiples of 11.4x and 8.7x, respectively.

Wal-Mart Stores (WMT) and Costco Wholesale (COST) are also relatively cheaper than WFM, trading at 17x and 25x, respectively.

Recommendations and recent analyst actions

Whole Foods is covered by 24 Wall Street analysts. The company has received a rating of 2.9 on a scale of 1.0 (strong buy) to 5.0 (sell), which among the lowest in the peer group. By comparison, Sprouts Farmers, Kroger, and Walmart are rated 2.2, 2.6, and 2.6, respectively.

Whole Foods has received a “buy” rating from 17% of its analysts, a “sell” rating from 8%, and a “hold” from 75%.

On June 28, Oppenheimer lowered Whole Foods from an “outperform” to a “market perform” rating. The broker removed the $45 target price, noting that a new bid on Whole Foods is highly unlikely.

Whole Foods currently has an average target price of $39.05, which indicates a downside of 7% from its current stock price.

ETF investors seeking to add exposure to Whole Foods can consider the First Trust Consumer Staples AlphaDEX Fund (FXG), which invests 6.8% of its portfolio in the company.

Continue to the next part for a look at Kroger’s performance in June.

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