Whole Foods Shares Continue Tumble Following Northcoast's Downgrade To Sell

Northcoast Research analysts Chuck Cerankosky and Kara Kavanaugh downgraded shares of Whole Foods Market, Inc. WFM to Sell from Neutral citing competitive environment forcing the company to create a more value oriented reputation. The brokerage has a price target of $24 on shares.

The analyst believes new Whole Foods Market locations are no longer organic food destinations and open up against different competitors. This would restrain its operating profits, as well as the stock's P/E ratio. However, they think, "Perhaps more notable is that the company's aggressive opening plans are causing it to absorb sales cannibalization even as other retailers are opening stores with strong perishable offerings— including prepared foods."

In the opinion of Northcoast, the 365 format wouldn't be significant enough to enhance the retailers' sales momentum. The analysts viewed it as a way to maximize real estate commitments. The brokerage pointed out its proprietary Retail Momentum Index, which has been bearish towards the company for some time.

As a result, the brokerage reviewed its financial outlook for Whole Foods and slashed its forecast. Accordingly, the analysts cut their EPS estimation to $1.51 for the fiscal year ended September 2016 from the earlier $1.51 predicted. However, the significant reduction is for the next fiscal year, i.e. the fiscal year ended September 2017.

The brokerage expects EPS of $1.50 after reducing $0.10 a share for the fiscal year 2017. The investment thinks the challenge is to deal with a shift in the company's competitive position.

Shares traded recently at $30.87, down 5 percent on the day.