Whole Foods Shares Drop On Wedbush Initiation

Whole Foods WFM shares are selling Thursday morning after Wedbush announced new coverage. Analyst Kurt Frederick initiated coverage at Neutral and a $40 price target.

Addressing the upcoming 2015 remodeling of 200 stores, Frederick commented "The remodel of up to 200 stores in 2015, including expanding freezers, dairy cases, size of produce departments, and adding juice bars, depending on the particular store needs, could push SSS ahead of 6% forecast by late-2015 and into 2016".

Competition in the natural organic industry appears to be driving Whole Foods expansion. Operating margin expansion possibilities remain subdued as Frederick wrote, "In an effort to become more price-competitive, Whole Foods has lowered prices over the last several quarters, largely within non-perishable product category and now within perishables. Such investments are planned to continue over the next several years, gradually lowering gross margins to 34-35% from 35.9% in Q3".

The company's private-label business provides a buffer against competition as annual sales of exclusive brands accounts for 12 percent of sales or $1.6 billion according to Wedbush.

Whole Foods shares traded recently at $39.03, down about two percent.