Sterne Agee On Whole Foods: 'When You Don't Know The Bottom, It's Hard To Step In And Buy The Stock'

Shares of Whole Foods Market, Inc. WFM opened significantly lower due to weak second-quarter numbers the company reported on Wednesday.

Charles Grom, Sterne Agee analyst, released a note to clients in which he reduced his rating on the stock to Neutral from Buy and also slashed his price target to $37 from $55 earlier. Grom was on CNBC to explain the reasons behind the downgrade.

Too Much Uncertainty

"I think the image point is going to have some lasting effects," Grom began. "We've seen that in the vitamins space where negative press can linger for more than just a quarter and I think that creates a lot of uncertainty. And we think the other issue here is the 365 concept, on the call the company did not provide a lot of details on how this store is going to really look."

Grom went on, "And I think it brings into questions the company's profitability overtime, the return on invested capital. And right now the key for us is just there's too much uncertainty on a stock that still trades at a high multiple and a margin profile because of the competition that looks like it's going down and when you don't know the bottom, it's hard to step in and buy the stock, that's why we downgraded it today."

They Will Figure It Out

Grom explained how his decision of downgrading the stock has nothing to do with Whole Foods management, saying, "I don't think it's a management issue. I think Walter Robb is one of the best CEOs in retail and I think the brand and the company has staying power over time and they will figure it out."

At time of writing, shares of Whole Foods were trading down 12 percent.