Oppenheimer Previews Whole Foods Earnings

In a report published Monday, Oppenheimer analyst Rupesh Parikh previewed Whole Foods Market, Inc. WFM's upcoming second quarter results, noting that a lack of comp upside "dampens" the potential for a positive catalyst.

Whole Foods will report its second quarter results on Wednesday after market close. The Consensus Estimize earnings per share estimate (based on 34 estimates) is $0.43 on revenue of $3.723 billion. This compares to the Wall Street Consensus earnings per share estimate of $0.42 on revenue of $3.708 billion.

According to Parikh, the second quarter is "one of the trickier" quarters to estimate as comp trends have slowed and could potentially fall short of consensus estimates – creating a negative estimate over the stock.

"As we look at the setup this quarter, we believe investors have started to bake in moderating comp trends following a recent underperformance and a now more discounted valuation," Parikh wrote. "However, a lack of comp upside likely limits the potential for a meaningful positive catalyst."

Parikh is forecasting a comp increase of around 5 percent (4.5 percent ex. Easter), which assumes a "modest" deceleration. In addition, weaker economic data coupled with "less positive" commentary from peer United Natural Foods, Inc. UNFI suggests "uneven trends." As such, the analyst is now suggesting investors add to positions post-quarter instead of playing this data point.

Parikh added that easing comp and gross margin comparisons over the coming quarters "brightens" the sentiments. However, the company's future remains "bumpy" as the analyst doesn't expect comp improvement every quarter.

Finally, in mid-March, Kroger co KR implemented price cuts in its natural and organic offering, presenting a near-term risk for not only Whole Foods, but the entire industry. The analyst is working under the assumption that Whole Foods can manage over time, but more widespread and deeper cuts from other grocers "would alter our views."

Shares remain Outperform rated with a price target lowered to $57 from a previous $65.