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By Todd McDonald, Analyst

Overview

Whole Foods Market (NASDAQ:WFM) is set to report 3Q2013 earnings after the close of trading on Wednesday, July 31. Results are typically disseminated at approximately 4:03 p.m. EST, with a thirty minute conference call at 5 p.m. EST.

Outliers & Strategy

  • Earnings Per Share: Whole Foods typically reports GAAP Earnings Per Share that compares with Street estimates. The current consensus estimate is $0.37, with a range of $0.35 to $0.38. (Source: Yahoo! Finance)
  • Revenues: Wall Street consensus estimates are for revenues of $3.09 bln, with a range of $3.05 bln to $3.13 bln. Revenues have missed Wall Street estimates 5 of the past 8 quarters.
  • Earnings Per Share Guidance (FY2013): Whole Foods issued guidance for the FY2013 of $2.86 to $2.89, but has since split its shares 2-for-1, which equates to FY2013 EPS of $1.43 to $1.445. Analysts are looking an increase in the firm's outlook for FY2013, with EPS of $1.45 with a range of $1.44 to $1.48.
  • Comparable Store Sales: According to Zack's Investment Research, comparable store sales are expected to increase 7.7% over 3Q2012.
  • Implied Volatility: The average absolute move made one day after earnings over the past eight quarters is 6.8%. Using options premiums, traders are expecting an absolute move of about 7%.
  • Whole Foods trades at a forward P/E ratio of about 32.24x, resulting in a PEG ratio of about 2.22. Therefore, any disappointments or hints at slower growth could have negative implications for the share price.
  • Sympathy Plays: Safeway (NYSE:SWY), Kroger (NYSE:KR), Supervalu (NYSE:SVU), The Fresh Market (NASDAQ:TFM)

Recent News

  • 07/29: Cantor Fitzgerald downgraded Whole Foods to Hold from Buy, while raising its price target to $54 from $52, according to a post on Benzinga.com. The firm cites a rich valuation, and the remodeling costs of its Johnnie's Foodmaster stores in Boston.
  • 06/05: According to a post on Benzinga.com, Sterne Agee started coverage on Whole Foods with a Buy rating and price target of $61. The firm points to an improved outlook in store growth, which Sterne Agee believes warrants a high multiple.
  • 05/07: In the 1Q2013 release, Whole Foods announced a two-for-one stock split.


(Click to enlarge)

Technical Review

Whole Foods shares are up almost 23% YTD, marginally outperforming the broader market gauges. The 50-day SMA crossed above the 200-day SMA in late May, signaling the return of momentum to the stock. The RSI reached overbought levels (above 70) in recent weeks, but has since retreated, with shares trading about 2.3% below all-time highs. Should earnings results surprise to the upside, new all-time highs are likely, with an upside target using implied volatility of about $59.40. Conversely, if earnings disappoint, the first area of potential support is the 50-day SMA near $53, followed by the bottom of the range from May through July near $51. (Chart courtesy of StockCharts.com)

Summary

Thanks in part to continued trends in healthy eating, strong brand loyalty, an improving economic backdrop, and quality management, Whole Foods has continued its ascent in the organic food industry. Given the recent run-up, coupled with high expectations for growth, any disappointment in the upcoming release could be a cause for concern. Focus on comparable store sales, as well as any changes in FY2013 EPS guidance for a reliable trading signal.

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Source: Whole Foods Market Earnings Preview: Q32013