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Whole Foods (NASDAQ:WFM) reports its fiscal 2nd quarter, 2013, after the bell Tuesday night, with consensus analyst expectations (per ThomsonReuters), looking for $0.73 in earnings per share (EPS), on $3.0 billion in revenues for expected year-over-year growth of 13% and 14% respectively.

IF WFM hits the $0.73 and generates 14% EPS growth, it would be the slowest rate of earnings growth for the specialty retailer since early 2009, or the bottom of the Great Recession.

WFM year-over-year revenue and EPS growth since April '09
Quarter

Y/Y rev

growth

Y/Y EPS

growth

4/13 (est)13% (est)14% (est)
1/1314%20%
10/1224%43%
7/1214%26%
4/1214%25%
1/1213%27%
10/1112%27%
7/1111%32%
4/1112%31%
1/1114%59%
10/1015%65%
7/1016%36%
4/1013%50%
1/107%28%
10/092%1900%
7/091%17%
4/090%-10%

* Source: internal spreadsheet from earnings reports, Q's

This is certainly an impressive record of growth for WFM, particularly given the type of recession we had, and clearly demonstrates the strength of WFM's model.

Last quarter, the stock dropped on what was thought to be cautious guidance for quarterly comps, but given the hike in payroll taxes, the delay in tax refunds, and the hit WFM took from Sandy and Nemo in the first quarter, I would guess WFM management was simply being conservative with 2013 guidance.

Analysts are looking for a 6% - 6.5% q2 '13 comp Tuesday night, versus the recent run of 7% - 9% the last two years.

In terms of valuation WFM is trading at 14(x) cash-flow [cheaper than Starbucks (NASDAQ:SBUX)] and 32(x) and 25(x) current consensus 2013 and 2013 EPS estimates of $2.87 and $3.40.

The forward 2013 and 2014 EPS estimates peaked in Q4 '12 and have been trimmed a little bit, but I do think a lot of that is due to a very noisy and crowded calendar q4 '12 and q1 '13.

Personally, I think WFM remains in good shape, and with current forward consensus now discounting slightly slower growth.

There are two elements to the WFM story that need to be considered:

1.) Regarding the SP 500, the best relative performance the last few years has been from U.S. companies like WFM that generate all their revenues within the U.S., with the point being that WFM has benefited from that flow-of-funds, which could be in the early stages of changing. As the global economy recovers, as investors we could see money flow to more international revenue generation, with lower valuations;

2.) On the plus side, WFM is still generating free-cash-flow and it has over $5 per share in cash on the balance sheet, but its "capital returned to shareholders as a % of free-cash-flow" is still pretty low, i.e. under 30% until the q1 '13 special dividend, pre the tax hike. WFM could return more capital to shareholders and still have plenty for store capex and build-outs.

Technically, WFM has been trading in a range between the low $80's and the low $100's for about 9 months.

Our internal model values WFM at $136 per share, while Morningstar values WFM at $86: splitting the difference, we think WFM is trading at a 15% - 20% discount to where we think "intrinsic value" might be, near $110 - $115.

We like the retailer, the niche, the cash-flow, and while the valuation is spicy, we think the quarter and 2013 guidance will be fine. WFM is certainly not a value stock, and could be considered a fairly valued growth stock.

Source: Whole Foods Earnings Preview: Guidance For 2013 Too Conservative