Longbow Hikes Whole Foods Rating, Says Comps Not Down As Much As Expected

On Friday, Longbow Research issued a company update on Whole Foods Market, Inc. (NASDAQ: WFM) after an analyst survey indicated the company's comparable sales decreased between 1 and 2 percent, which was a lower decline than expected.

Analysts at Longbow upgraded Whole Foods to Neutral; a price target is currently unavailable.

Alton Stump, an analyst at Longbow Research, wrote, "The shares of Whole Foods have traded down approximately 40 percent since we launched coverage on WFM in late 2014. Since WFM could beat conservative comparable revenue forecasts at least in the near term and the shares are trading sharply below their historical average, we recommend investors remain on the sidelines in the absence of a near-term negative catalyst."

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Key Takeaways

Analysts at Longbow highlighted two key takeaways that have the potential to drive Whole Foods lower in 2016:

• 1. Declining Traffic In Whole Foods Stores

Longbow noted that same-store traffic was down 0.5 percent year over year, which analysts believe could be an indication of weakening demand for the company's healthy, organic food products. The reason for the slowdown could also be due to increased competition among grocers as many small, specialty grocers have been taking market share from a marketplace traditionally dominated by Whole Foods.

• 2. Margins

Whole Foods' pricing was down 0.5 to 1 percent year over year, which analysts believe may contribute to declining profitability for the grocer as the company hopes to accelerate traffic in the stores by offering multiple discounted offers.

At the time of this publication, Whole Foods was trading up 1.47 percent on the day at $29.62.

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