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Market Update

Whole Foods Still Overpriced Despite Share Drop

The specialty grocery store's weak comp sales growth and lowered sales forecast sent shares spiraling, but Whole Foods still has much room to expand.


 Whole Foods Market's (WFM) shares fell more than 7% after the company reported first-quarter results, primarily on concerns that comparable-store sales growth (5.4% in the quarter) has slowed, as management also lowered the top end of its comp-store sales forecast range to 5.5%-6.2% for the full year (versus 5.5%-7.0% previously). 

Whole Foods' results and outlook were marginally below our expectations, but we don't expect a material change to our fair value estimate as adjustments for time value of money should offset minor near-term adjustments. Shares appear rich relative to our fair value estimate, which assumes 11% annual sales growth, 7% average operating margins, and low-teen free cash flow growth during the next decade. (Given that Whole Foods has no debt in its capital structure, we discount cash flows at 10%.)

Ken Perkins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.