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Whole Foods Trades at a Premium to Most Peers Thanks to Amazon

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Jul. 20 2017, Updated 10:37 a.m. ET

Earnings and valuations of WFM

Whole Foods has seen deterioration in its sales comps and earnings over the past few years. Its earnings per share (or EPS) fell from a rise of 16.7% in fiscal 2013 to a fall of 3.7% in fiscal 2016. The company is expected to report another 16.1% fall in its fiscal 2017 EPS.

However, regarding its valuation, the company is operating close to its peak. It’s valued at a one-year forward price-to-earnings ratio (or PE) of 32x, compared to its three-year average of 23x. Much of this rise came after Amazon’s acquisition was announced on June 16.

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Not only is WFM expensive historically, it’s also operating at a premium to most grocers, big-box retailers, and discount stores. Kroger (KR), Sprouts Farmers Market (SFM), Walmart (WMT), and Dollar Tree (DLTR) are currently valued at one-year forward PEs of 11.4x, 26x, 17.3x, and 15x, respectively.

Earnings potential comparison

Looking at the near-term horizon of the next 12 months, Whole Foods has bleak earnings potential compared to its retail food peers. The organic food retailer’s earnings are expected to fall 6.4% over the next 12 months.

In comparison, Kroger, Sprouts, Walmart, and Dollar Tree are likely to report earnings rises of 1.4%, 7.8%, 1.5%, and 19%, respectively.

However, starting in fiscal 2018, Whole Foods’ earnings are expected to improve. Wall Street has predicted a 5.4% rise in WFM’s fiscal 2018 EPS, followed by 11% and 23% rises in its 2019 and 2020 EPS. To know more about Wall Street’s recommendations on WFM, read the next article.

ETF investors seeking to add exposure to Whole Foods can consider the First Trust Consumer Staples AlphaDEX ETF (FXG), which invests 4.7% of its portfolio in the company.

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