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Have You Offloaded Whole Foods (WFM) from Your Portfolio?

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Whole Foods Market, Inc. is one such stock that is struggling to find a place in investors’ portfolio. Why is it so? Share price of this natural and organic foods supermarket chain operator, has declined roughly 8.3% year to date, and is now hovering close to its 52-week low of $28.07. Moreover, the company currently carries a Zacks Rank #4 (Sell). This implies that analysts covering the stock are not convinced about Whole Foods’ performance in the near future. As a result, the Zacks Consensus Estimate too has witnessed a downtrend.

Why is the Stock Out of Favor Now?

After registering back-to-back earnings beat in the first two quarters of fiscal 2016, Whole Foods reported in line earnings in the third quarter. The company posted quarterly earnings of 37 cents a share that met the Zacks Consensus Estimate but declined sharply from 43 cents delivered in the year-ago quarter. Management now envisions earnings per share in the band of 23−24 cents for the fourth quarter of fiscal 2016, down from 30 cents reported in the prior-year period.

Whole Foods saw its comparable-store sales (comps) decline 2.6% in the third quarter of fiscal 2016. During the first three weeks of the fourth quarter, comps dropped 2.4%. Comps had declined 3% and 1.8% in the second and first quarters of fiscal 2016, respectively, and 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, management expects comps to drop 2% during fourth-quarter fiscal 2016.

Which Way are Estimates Treading?

Analysts polled by Zacks are less constructive on the stock. Over the past 60 days, the Zacks Consensus Estimate of $1.51 and $1.53 for fiscal 2016 and fiscal 2017 has declined 1 cent and 5 cents, respectively. Moreover, the Zacks Consensus Estimate for the fourth quarter has dropped 1 cent to 24 cents over the same time frame.

WHOLE FOODS MKT Price, Consensus and EPS Surprise

 

WHOLE FOODS MKT Price, Consensus and EPS Surprise | WHOLE FOODS MKT Quote

Needless to say, management at Whole Foods is not sitting idle. The company has been revamping its pricing strategy, with a focus on value offerings, along with the introduction of a new “uniquely-branded store concept”, "365 by Whole Foods Market”. The company is trying to spur sales through store openings, adoption of the digital route and home delivery services. But when it comes to the question of a healthy portfolio, it would be prudent for investors to look beyond Whole Foods, at least for the time being.

Stocks that Warrant a Look

Investors may consider better-ranked stocks such as Cal-Maine Foods, Inc. (CALM - Free Report) , Pinnacle Foods Inc. and The Kraft Heinz Company (KHC - Free Report) , all carrying a Zacks Rank #2 (Buy).

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