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The Sell-Side Response To Amazon–Whole Foods Deal

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The Sell-Side Response To Amazon–Whole Foods Deal
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Amazon.com, Inc. (NASDAQ: AMZN) announced its continued foray into the brick-and-mortar space by announcing a deal to buy Whole Foods Market, Inc. (NASDAQ: WFM) for $42 per share in cash or a total transaction value of $13.7 billion, including the latter's debt.

 

Following the announcement of the deal, one analyst said the acquisition is a game changer. Another analyst raised his price target on Whole Foods on his view that there might be a competing offer, he also upgraded shares of Sprouts Farmers Market Inc (NASDAQ: SFM), terming the sell-off in the shares of the company in the wake of the news as an attractive entry point.

Game Changer In Food Retail Space

Wells Fargo said the deal is a game changer in the food retail landscape. The firm believes the deal makes sense on several fronts, such as size, scale and technology expertise to improve its buying power, logistics capabilities and operating best practices.

Analysts Zachary Fadem sees the deal as a winning outcome for Whole Foods shareholders. However, the analyst believes it is a warning for the food retail industry, which is already facing a challenging retail backdrop.

"Upon this announcement, we are incrementally more cautious on the brick-and-mortar supermarket industry, and envision an accelerated shift towards combining digital and local, with scale an increasingly important competitive advantage," Wells Fargo said (check out Fadem's track record).

That said, the firm believes the sell-off in major food retail shares on the news as being overdone. Additionally, Wells Fargo indicated that its food distribution coverage, namely US Foods Holding Corp (NYSE: USFD), SYSCO Corporation (NYSE: SYY) and Performance Food Group Co (NYSE: PFGC), remains more insulated.

Sell-Off In Sprouts Farmers Create Attractive Entry Point

Oppenheimer believes the sell-off in shares of Sprouts Farmers following the announcement of the deal as an attractive entry point to get involved with a very high-quality retailer.

Analyst Rupesh Parikh believes the company remains well positioned on its own, with the likelihood of even a takeout offer at a price as high as $30. The analyst upgraded shares of Sprouts Farmers to Outperform from Perform and introduced a price target of $24.

Raising Price Target For Whole Foods

Oppenheimer raised its price target for Whole Foods to $45, premised on its view that another bid cannot be ruled out even from a defensive measure to protect against the Amazon threat.

The firm believes the offer price of $42 undervalues Whole Foods' prospects and the powerful brand. Pointing that it had earlier estimated a takeout value in the mid-$40s range, the firm said it appears that there is some money left on the table (See Parikh's track record).

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Oct 2017CitigroupMaintainsBuy
Oct 2017UBSMaintainsBuy
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