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Whole Foods Grapples with Multiple Headwinds: Time to Sell?

CAG MKC WFM KHC

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Whole Foods Market, Inc. (WFM - Free Report) is struggling in the face of severe headwinds in the form of stiff competition, food price deflation, an aggressive promotional environment and waning store traffic. Analysts believe that industry-wide weakness is also hurting the margin of this supermarket chain. Share price of this provider of daily need items has fallen more than 16% year-to-date and is now hovering close to its 52-week low of $27.67. Moreover, the company currently carries a Zacks Rank #4 (Sell).

Whole Foods has been plagued with dwindling comparable-store sales (comps). The company saw its 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 were down 3% and 1.8% in the second and first quarters of fiscal 2016, respectively, and slipped 0.2% in the final quarter of fiscal 2015. Management expects comps to decline of 2.4% during the fourth quarter of fiscal 2016.

The grocery business is highly competitive and fragmented. With more companies entering the fray and as well as expanding their presence, it is becoming tough for the existing players to retain their market share.

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.

WHOLE FOODS MKT Price and Consensus

WHOLE FOODS MKT Price and Consensus | WHOLE FOODS MKT Quote

Better-Ranked Stocks

Investors may consider better-ranked stocks such as ConAgra Foods, Inc. (CAG - Free Report) ,  The Kraft Heinz Company (KHC - Free Report) and McCormick & Company, Incorporated (MKC - Free Report) all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ConAgra Foods delivered an average positive earnings surprise of 10.7% over the trailing four quarters and has a long-term earnings growth rate of 8.8%.

Kraft Heinz delivered an average positive earnings surprise of 5.2% over the trailing four quarters and has a long-term earnings growth rate of 19.5%.

McCormick delivered an average positive earnings surprise of 4.5% over the trailing four quarters and has a long-term earnings growth rate of 9%.

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