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Is Wal-Mart (WMT) Better Placed Than Whole Foods Market Now?
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Retail sales have been rising across most product categories since the past few months, with higher expenditure at gas stations and increased online spending leading the key metric. The bubbling optimism in the retail sector is due to a steadily growing U.S. economy and rising home values despite tepid job data released earlier this month, Brexit fears, Federal Reserve’s reluctance to hike rates and other global growth issues.
In the retail sector, the supermarket industry is showing some good signs right now. Let’s look at the two supermarket biggies - Wal-Mart Stores Inc.(WMT - Free Report) and its peer Whole Foods Market, Inc. and find out which grocer looks solid right now.
Wal-Mart’s Positive Start to FY17
After weak and sluggish performance in 2016, this Bentonville, AR-based company posted impressive first-quarter fiscal 2017 results in May 2016 wherein both earnings and revenues beat the Zacks Consensus Estimate, buoyed by improved comparable store sales. Revenues increased 0.9% year over year and grew 4% on a constant currency basis. The sales decline in the International business was more than offset by growth in sales at Wal-Mart U.S. and Sam’s Club divisions.
Wal-Mart is also seeing positive comps at Wal-Mart U.S. for the past seven quarters, after delivering negative comps since the third quarter of fiscal 2013. Traffic improved for six consecutive quarters, owing to the company’s efforts to modernize its stores to boost traffic and due to moderate improvement in consumer spending led by lower gas prices. Many of the U.S. customers are also using their tax refunds in shopping. Wal-Mart’s efforts to change its stores as per consumers’ demand helped the retailer attract some of the shoppers. In fact, the company continues to expect positive comps year over year at Wal-Mart U.S. in fiscal 2017.
Wal-Mart is putting a lot of effort and focusing on expanding its online business in order to gain larger market share than Seattle-based Amazon.com Inc. (AMZN - Free Report) , the leader in the online business. In fact, the company expects to continue to invest aggressively in e-commerce initiatives in fiscal 2017.
In addition, Wal-Mart has also hiked its minimum wages to keep workers contented, which will lead to improvement in its customer service and ultimately encourage shoppers to spend more.
What’s Up at Whole Foods Market?
Whole Foods delivered second straight quarter of positive earnings surprise on the back of cost control endeavors. This Austin, TX-based company posted second-quarter fiscal 2016 earnings of 44 cents per share that beat the Zacks Consensus Estimate of 41 cents but remained flat year over year. We also note that the top line increased by 1.3% during the quarter but at a rate lower than 3.4% registered in the first quarter. It also fell short of our estimate.
Whole Foods saw its comps decline 3% in the quarter and 2.6% during the first three weeks of the third quarter. Comparable-store sales had fallen 1.8% in the first quarter, following a decline of 0.2% in the final quarter of fiscal 2015. Stiff competition has been weighing upon the company’s performance. More and more companies are entering as well as expanding their presence in the Organic & Natural food business. This may dent the company’s sales and margins. In fact, the company expects comps decline of up to 2% for the full year.
What do the Numbers Say?
Stock Price: The biggest retailer Wal-Mart, with a market cap of $219.27 billion, has had a healthy run so far this year, gaining around 17.4% in price. On the other hand, shares of Whole Foods Market have declined 7.76% year-to-date.
Earnings Estimates and Long-term Growth:Over the past 60 days, analysts have become increasingly bullish on Wal-Mart, with all the 12 estimates for the fiscal moving north against no negative revisions. On the other hand, one of the more recognizable names in the domestic grocery industry, Whole Foods Market hasn’t seen positive movement in estimates. In the past 60 days, Whole Foods has seen 11 negative estimate revisions for its full-year earnings and no positive revisions.
With regard to long-term growth however Whole Foods Market seems to have the lead. Its estimated long-term growth rate is 8.1%, which is better than Wal-Mart’s long-term growth rate of 4.34%. However, both lag the industry growth rate of 11.3%.
Value Score: Both Wal-Mart and Whole Foods Market carry a VGM score of A. Here “V” stands for Value, “G” for Growth and “M” for Momentum and the score is the weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.
However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. Wal-Mart carries a Value style score of A, while Whole Foods carries a Value score of B.
Our Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.
Wal-Mart thus fares better than Whole Foods in terms of Value Score, as it carries a Zacks Rank #2 with preferred individual Style Score of A. Whole Foods, though with an individual score of B, holds a Zacks Rank #4 (Sell).
Dividend Yield: Supermarket stocks reward investors with attractive yields. While Wal-Mart has a dividend yield of 2.82%, Whole Foods Market has a dividend yield of 1.77%.
P/E and P/S multiples: Whole Foods Market is overvalued as is evident from its unfavorable P/E and P/S ratios compared with the industry average.
Wal-Mart’s forward P/E ratio is 16.7, lower than the industry ratio of 18.9. However, Whole Foods’ P/E is 20.0, higher than the industry.
Wal-Mart’s P/S ratio is 0.5 while that of Whole Foods’ is 0.6 compared to the industry average of 0.5.
Bottom Line
That being said, retail giant Wal-Mart is undoubtedly a better choice than Whole Foods Market for investment right now. This U.S. retail bellwether enjoys strong growth potential along with compelling fundamentals, impressive Zacks metrics and solid earnings data, which will help investors mint money despite global uncertainties.
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Is Wal-Mart (WMT) Better Placed Than Whole Foods Market Now?
Retail sales have been rising across most product categories since the past few months, with higher expenditure at gas stations and increased online spending leading the key metric. The bubbling optimism in the retail sector is due to a steadily growing U.S. economy and rising home values despite tepid job data released earlier this month, Brexit fears, Federal Reserve’s reluctance to hike rates and other global growth issues.
In the retail sector, the supermarket industry is showing some good signs right now. Let’s look at the two supermarket biggies - Wal-Mart Stores Inc.(WMT - Free Report) and its peer Whole Foods Market, Inc. and find out which grocer looks solid right now.
Wal-Mart’s Positive Start to FY17
After weak and sluggish performance in 2016, this Bentonville, AR-based company posted impressive first-quarter fiscal 2017 results in May 2016 wherein both earnings and revenues beat the Zacks Consensus Estimate, buoyed by improved comparable store sales. Revenues increased 0.9% year over year and grew 4% on a constant currency basis. The sales decline in the International business was more than offset by growth in sales at Wal-Mart U.S. and Sam’s Club divisions.
Wal-Mart is also seeing positive comps at Wal-Mart U.S. for the past seven quarters, after delivering negative comps since the third quarter of fiscal 2013. Traffic improved for six consecutive quarters, owing to the company’s efforts to modernize its stores to boost traffic and due to moderate improvement in consumer spending led by lower gas prices. Many of the U.S. customers are also using their tax refunds in shopping. Wal-Mart’s efforts to change its stores as per consumers’ demand helped the retailer attract some of the shoppers. In fact, the company continues to expect positive comps year over year at Wal-Mart U.S. in fiscal 2017.
Wal-Mart is putting a lot of effort and focusing on expanding its online business in order to gain larger market share than Seattle-based Amazon.com Inc. (AMZN - Free Report) , the leader in the online business. In fact, the company expects to continue to invest aggressively in e-commerce initiatives in fiscal 2017.
In addition, Wal-Mart has also hiked its minimum wages to keep workers contented, which will lead to improvement in its customer service and ultimately encourage shoppers to spend more.
What’s Up at Whole Foods Market?
Whole Foods delivered second straight quarter of positive earnings surprise on the back of cost control endeavors. This Austin, TX-based company posted second-quarter fiscal 2016 earnings of 44 cents per share that beat the Zacks Consensus Estimate of 41 cents but remained flat year over year. We also note that the top line increased by 1.3% during the quarter but at a rate lower than 3.4% registered in the first quarter. It also fell short of our estimate.
Whole Foods saw its comps decline 3% in the quarter and 2.6% during the first three weeks of the third quarter. Comparable-store sales had fallen 1.8% in the first quarter, following a decline of 0.2% in the final quarter of fiscal 2015. Stiff competition has been weighing upon the company’s performance. More and more companies are entering as well as expanding their presence in the Organic & Natural food business. This may dent the company’s sales and margins. In fact, the company expects comps decline of up to 2% for the full year.
What do the Numbers Say?
Stock Price: The biggest retailer Wal-Mart, with a market cap of $219.27 billion, has had a healthy run so far this year, gaining around 17.4% in price. On the other hand, shares of Whole Foods Market have declined 7.76% year-to-date.
WAL-MART STORES Price and Consensus
WAL-MART STORES Price and Consensus | WAL-MART STORES Quote
WHOLE FOODS MKT Price
WHOLE FOODS MKT Price | WHOLE FOODS MKT Quote
Earnings Estimates and Long-term Growth:Over the past 60 days, analysts have become increasingly bullish on Wal-Mart, with all the 12 estimates for the fiscal moving north against no negative revisions. On the other hand, one of the more recognizable names in the domestic grocery industry, Whole Foods Market hasn’t seen positive movement in estimates. In the past 60 days, Whole Foods has seen 11 negative estimate revisions for its full-year earnings and no positive revisions.
With regard to long-term growth however Whole Foods Market seems to have the lead. Its estimated long-term growth rate is 8.1%, which is better than Wal-Mart’s long-term growth rate of 4.34%. However, both lag the industry growth rate of 11.3%.
Value Score: Both Wal-Mart and Whole Foods Market carry a VGM score of A. Here “V” stands for Value, “G” for Growth and “M” for Momentum and the score is the weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.
However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. Wal-Mart carries a Value style score of A, while Whole Foods carries a Value score of B.
Our Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.
Wal-Mart thus fares better than Whole Foods in terms of Value Score, as it carries a Zacks Rank #2 with preferred individual Style Score of A. Whole Foods, though with an individual score of B, holds a Zacks Rank #4 (Sell).
Dividend Yield: Supermarket stocks reward investors with attractive yields. While Wal-Mart has a dividend yield of 2.82%, Whole Foods Market has a dividend yield of 1.77%.
P/E and P/S multiples: Whole Foods Market is overvalued as is evident from its unfavorable P/E and P/S ratios compared with the industry average.
Wal-Mart’s forward P/E ratio is 16.7, lower than the industry ratio of 18.9. However, Whole Foods’ P/E is 20.0, higher than the industry.
Wal-Mart’s P/S ratio is 0.5 while that of Whole Foods’ is 0.6 compared to the industry average of 0.5.
Bottom Line
That being said, retail giant Wal-Mart is undoubtedly a better choice than Whole Foods Market for investment right now. This U.S. retail bellwether enjoys strong growth potential along with compelling fundamentals, impressive Zacks metrics and solid earnings data, which will help investors mint money despite global uncertainties.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>