Comparing WFM’s Valuations to peers
As a result of its plunging share price, Whole Foods Market (WFM) has witnessed a severe deterioration in its valuations. The company, which traded at an average earnings multiple of 40x in 2013, is currently trading at a one-year forward PE (price-to-earnings) multiple of 18.3x as of May 4, 2016.
However, WFM continues to trade at a premium to Kroger (KR) and SuperValu (SVU), which have one-year forward PEs of 15.7x and 6.5x, respectively. Sprouts Farmers Market (SFM) is the most expensive supermarket, trading around 28x.
A look at WFM’s earnings potential
Whole Foods Market’s one-year forward PE of 18.3x suggests that the Market is willing to pay around 18 times the company’s next-12-month (or NTM) earnings per share (or EPS) of $1.55 per share. The company’s earnings are predicted to fall by 5.5% over the next 12 months.
In comparison, Kroger and Sprouts have stronger earnings forecasts. Kroger’s NTM EPS are predicted to rise by 8.2%, while Sprouts’ NTM EPS are predicted to rise by 14.4%.
Wall Street’s view of WFM
Wall Street seems to have a neutral view on Whole Foods Market. Of the 29 analysts that have rated WFM, 23 have recommended “holds” on the stock. Only three analysts have recommended “buys,” and another three have recommended “sells” on the stock. The company’s stock has been rated 3.1 on a scale of 1 (strong buy) to 5 (strong sell).
Wall Street analysts don’t see much upside to Whole Foods Market’s current stock price. WFM’s target price of $29.84 reflects a 4.5% potential rise from its current price of $28.51.
ETF investors seeking to add exposure to Whole Foods can consider the VanEck Vectors Retail ETF (RTH), which invests 1.5% of its portfolio in the company.