Activist Stake In Whole Foods May Be Just The Catalyst This Stock Has Lacked

On April 10, activist investor Jana Partners announced that it had acquired an 8.8 percent stake in Whole Foods Market, Inc. WFM.

Credit Suisse’s Edward J. Kelly maintains an Outperform rating on Whole Foods Market, while raising the price target from $36 to $40.

Potential Catalyst

The analyst believes Jana Partners is pushing for an accelerated turnaround for Whole Foods Market, while also exploring a sale of the company.

“The news represents the catalyst the stock has lacked and highlights the opportunity in this once-thriving company,” Kelly mentioned, while adding, “We continue to see large opportunity in a fix or sell scenario.”

The analyst believes Whole Foods Market has superior brand value, although it has been mismanaged, with the company failing to adapt to the evolving landscape of food retail.

With the involvement of an activist investor, Kelly believes that the stock now has downside support, although this outside influence is likely to also meaningfully change the outlook for the stock for the better.

Opportunities For A Turnaround

“The problem at WFM is much deeper than many investors realize. Its weak price position has received most of the attention, but the broader issue is that WFM is not a well-run, modern day retailer at the moment,” the analyst cautioned.

Kelly pointed out that the company was still somewhat decentralized, lacking adequate systems and adequate customer data. In addition, its pricing strategy and category management have been weak, while the cost structure appears high, and the company is still opening stores despite diminishing returns.

However, the analyst expressed optimism regarding these issues proving to be opportunities for Whole Foods Market to effect a turnaround, while stating that the company provides a “differentiated, value-added experience,” while its brand continues to be strong.

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