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Summary

Whole Foods Market (WFM) is scheduled to report 4Q 2011 earnings after the close of trading on Wednesday, November 2. Whole Foods remains the market leader in high-end grocery chains, with an attractive real estate portfolio given the adjacency of its stores to the more affluent consumer, while carving out an attractive niche in the healthy/organic space.

With the stock just off the recent 52-week high of $74.45 and expectations moving higher ahead of the 4Q earnings release, Whole Foods is vulnerable to any missteps. The company previously guided for EPS of $0.40 to $0.41, while revenues are seen improving 12.7% to $2.36 bln. Considering the recent run-up from the August lows (up ~30%), Whole Foods is expected to significantly top these estimates. The guidance for the 1Q 2012 period and FY 2012 could also dictate how the shares respond to earnings.

Valuation is a bit elevated ahead of the 4Q earnings release, with the shares trading at 31.9x forward earnings, more than double the five-year growth rate. But at a mere 1.3x sales, no debt on its books, nearly $537 mln in cash, and efficient cost controls, Whole Foods is seeing improved margins and earnings growth. A stronger than expected quarterly report from United Natural Foods (UNFI) back on September 8 also bodes well.

Chart Review

  • Whole Foods recently hit a 52-week high of $74.45. That will be the initial resistance level in the event of a stronger than expected earnings release. The all-time high is near $78, a level established at the start of 2005.
  • In the event of a disappointing earnings release, look for soft support near $70, coinciding with the 20-Day SMA, and the 50-Day SMA around $68. There is further downside risk to $64.

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Source: Volatility Alert For Whole Foods: Company Reports Earnings Wednesday