Why we should buy Whole Foods Market, Inc.(NASDAQ:WFM) for $ 46 ?

Whole Foods Market, Inc. NASDAQ:WFM

Whole Foods Market, Inc. (Whole Foods Market) is a retailer of natural and organic foods and grocer. The Company has one operating segment, natural and organic foods supermarkets. As of September 29, 2013, Whole Foods Market operated 400 stores in the United States, Canada, and the United Kingdom. The Company’s offices are supported by its headquarters, regional offices, distribution centers, bake house facilities, commissary kitchens, seafood-processing facilities, meat and produce procurement centers, and a specialty coffee and tea procurement and roasting operation. The Company’s product selection includes grocery, meat, seafood, bakery, prepared foods and catering, coffee, tea, beer, wine, cheese, nutritional supplements, vitamins, body care, and lifestyle products including books, pet products, and household products. The Company’s 365 and 365 Organic Everyday Day Value brands account for approximately half of its brand items.

RECOMMENDATION

We rate WHOLE FOODS MARKET INC (WFM) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, expanding profit margins and good cash flow from operations.

CAUSES

The revenue growth came in higher than the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 9.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

WHOLE FOODS MARKET INC has improved earnings per share by 15.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WHOLE FOODS MARKET INC increased its bottom line by earning $1.56 versus $1.47 in the prior year. This year, the market expects an improvement in earnings ($1.72 versus $1.56).

The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Food & Staples Retailing industry average. The net income increased by 12.0% when compared to the same quarter one year prior, going from $142.00 million to $159.00 million.

WHOLE FOODS MARKET INC has the gross profit margin of 38.68% which is consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 4.35% is above that of the industry average.

Net operating cash flow has increased to $322.00 million or 14.18% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -24.50%.

In the last five years WFM kept expanding by increasing the number of stores. Revenues increased at a higher rate than the number of stores meaning that comparable sales at existing stores also grew. When all of that is topped with an even higher EPS growth rate it can be concluded that the business is ran very efficiently. The management is capable of providing growth without sacrificing earnings. Currently the WFM management announced a new strategy that will develop smaller stores that will try to reach more customers. The stores will be called 365 by Whole Foods Market.

The first of these stores is likely to open next year and will focus on selling the Whole Foods exclusive brand called 365 Everyday Value.

 All numbers are in millions:

Whole Foods Market Inc. Annual Data
	9-Sep	10-Sep	11-Sep	12-Sep	13-Sep	14-Sep
Net Income	147	246	343	466	551	579
CF DDA	267	276	287	312	339	377
Change In Working Capital	75	46	28	65	57	60
Cash Flow from Disc. Op.	0	0	0	0	0	0
Stock Based Compensation	13	23	27	42	57	68
Cash Flow from Others	73	28	50	43	56	82
Cash Flow from Operations	588	585	755	920	1,009	1,088
Whole Foods Market Inc. Quarterly Data
	13Dec	14-Mar	14-Jun	14-Sep	14-Dec	15-Mar
Net Income	158	142	151	128	167	159
CF DDA	111	87	88	91	125	100
Change In Working Capital	33	37	-30	20	59	54
Cash Flow from Disc. Op.	0	0	0	0	0	0
Stock Based Compensation	18	18	15	17	19	18
Cash Flow from Others	21	12	28	21	19	6
Cash Flow from Operations	337	282	240	229	387	322

Net Income from Continuing Operations (Annual Data)

Sep05	Sep06	Sep07	Sep08	Sep09	Sep10	Sep11	Sep12	Sep13	Sep14
136M	204M	183M	115M	147M	246M	343M	466M	551M		579M

Net Income from Continuing Operations (Quarterly Data)

Dec12	Mar13	Jun13	Sep13	Dec13	Mar14	Jun14	Sep14	Dec14	Mar15
146M	142M	142M	121M	158M	142M	151M	128M	167M	159M	159

FINANCIAL ANALYSIS

WHOLE FOODS MARKET INC's gross profit margin for the second quarter of its fiscal year 2015 is essentially unchanged when compared to the same period a year ago. The company managed to grow both sales and net income at a faster pace than the average competitor in its industry this quarter as compared to the same quarter a year ago.