Whole Foods' Second Quarter Earnings Preview

May. 6.13 | About: Whole Foods (WFM)

Whole Foods (NASDAQ:WFM) is scheduled to report its 2nd quarter 2013 earnings on Tuesday, May 7th from 5:00 - 5:30 pm ET. Below I have provided an update of the quarter as well as an overview of earnings expectations.

Profile and Estimates

Whole Foods has a market cap of $16.95 billion and currently trades for $91.46 per share. Shares are up 0.79% YTD and trade 15.32% above their 52-week low of $79.31. Analysts have a mean target price of $102.32 and a median price target of $104.00 on the shares. Twenty four analysts have an average first quarter earnings per share estimate of $0.73 on estimated revenues of $3.03 billion. Whole Foods has beat earnings in three of the last four quarters.

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Fundamentals and Highlights (Sources cited below article)

Positives

  • Revenue growth has averaged 13.4% over the past three years compared to the industry averages 3.9%.
  • Net income has grown at the average of 46.9% over the last three years.
  • Operating margin of 6.5% and net margins of 4.1% are both above the industry averages 0.9% and 2.5% respectively.
  • ROA of 10.3 and ROE of 14.7 are both above the industry averages 2.5 and 9.0 respectively.
  • Lots of room to grow, currently the company has more than 340 stores in North America and the United Kingdom.
  • Short interest has been declining since 3/15/13 which indicates that investors are comfortable with the current valuation.

Negatives

  • P/B of 4.8 and P/S of 1.4 are both above the industry averages 3.1 and 0.3 respectively.
  • Return on invested capital has grown in each of the last four years, was 13.62% last year.
  • High expectations and a high P/E may indicate overvaluation and high downside should Whole Foods fail to deliver positive results.

Take Away

Growth is the key for Whole Foods and with consumers taste for more organic and healthier eating options, I hesitate to say this but, the path ahead looks very green (sorry I know that's a bad one). A lot of this growth is already priced in but its hard to argue that Whole Foods doesn't deserve to trade at a premium when compared to its peers. Keep a look out for the earnings report on Tuesday!

Sources

In addition to the links above, ratios and financial data was sourced from Morningstar.com, which you can find here.

Other company data was sourced from the 1st quarter's report that can be found here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.