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We retained our Neutral recommendation on Whole Foods Market, Inc. (WFM - Analyst Report) with a target price of $59.00.

Why the Reiteration?

Being one of the leading natural and organic foods supermarkets, Whole Foods with a strong brand image, and marketing and merchandising expertise, offers investors one of the strongest growth profiles in the industry. The stock is poised to surge once the economy revives and the demand for healthier and natural food improves.

The stringent cost-control measures, effective inventory management, and improved store-level performance facilitated Whole Foods to register 20% growth in the bottom line during the third quarter of fiscal 2013. The company in the last 4 quarters has surpassed the Zacks Consensus Estimate by an average of 2.7%.

Whole Foods also raised its earnings per share projection for fiscal 2013 to a range of $1.45 to $1.46 per share, portraying a year-over-year jump of 15% to 16%. The company also has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last 3 fiscal years, gross margin has been in the range of 34.8%­–35.5%.

Total revenue during the quarter also did increase 12.1% to $3,058 million but fell short of the Zacks Consensus Estimate of $3,090 million. Moreover, the rate of growth of comparable-store sales decelerated from the year-ago period. Comparable-store sales rose 7.5% in the quarter, down from 8.2% growth registered in the prior-year quarter.

Despite adopting a competitive pricing technique to gain market share against other supermarket chains, Whole Foods was able to post healthy results. However, we fear that this might hurt margins going forward.

Zacks Rank for Whole Foods

Currently, Whole Foods carries a Zacks Rank #3 (Hold). However, there are certain other stocks that warrant a look, such as Dole Food Company Inc. , which holds a Zacks Rank #1 (Strong Buy) and is expected to continue with its upbeat performance. Other stocks that should be merited are Kraft Foods Group, Inc. (KRFT - Analyst Report) and Treehouse Foods, Inc. (THS - Snapshot Report), both of which sport a Zacks Rank #2 (Buy).

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