Whole Foods Market, Inc. (WFM) Stock Pops on Activist Stake, Sale Talk

Struggling organic foods grocer Whole Foods Market, Inc. (NASDAQ:WFM) received a big lift in late Monday trading on a report that activist investor Jana Partners LLC has dug in for battle with a roughly 9% stake and a few ideas on how to squeeze out more shareholder value. The news sent WFM stock up by more than 10% in quick order.

Whole Foods Market, Inc. (WFM) Stock Pops on Activist Stake, Sale Talk

Whole Foods shares have been roughly halved from their 2013 peak amid increasing competition in the natural-foods space from entrenched competitors including Kroger Co (NYSE:KR) and even Wal-Mart Stores Inc (NYSE:WMT).

Jana Partners, amid disclosing its stake, says it wants the grocery chain to explore everything from operational improvements to a potential sale. Per the Wall Street Journal:

“Jana, Whole Foods’ second-largest shareholder, is planning to press the chain to improve its technology and operations to better compete with larger rivals, shake up its board and find out how much a potential bidder might be willing to pay, according to people familiar with the matter.”

Jana also said that it has already picked a group of potential board nominees, according to the WSJ.

Whole Foods’ growth has slowed to a crawl of late, with 2016 revenues of $15.7 billion up just 2% year-over-year, with no help from comparable-store sales, which actually declined 2.5%. Worse, profitability is slowing down, with net income sliding from $579 million two years ago to $536 million in 2015, and $507 million in 2016.

A report in March by Barclays described traffic declines at Whole Foods as “staggering,” not just thanks to competition from the aforementioned giants, but also smaller organic-focused rivals such as Sprouts Farmers Market Inc (NASDAQ:SFM) and Trader Joe’s.

Barclays analyst Karen Short said “a 3% traffic decline might not seem like much, but this equates to 14 million customers.” She also showed that Kroger is likely a direct beneficiary of Whole Foods’ issues.

“Our conclusion: assuming ~$30-$50 average basket sizes, we estimate ~9M-14M annual transactions left WFM in the last 6 quarters and KR, which has meaningful overlap with WFM, is likely a direct beneficiary of WFM’s share losses as evidenced by: 1) KR at $16 billion in natural and organic sales (vs WFM LTM of $15.8 billion), and 2) RS Metrics data (satellite imagery data) included herein showing both overlap with KR within various trade areas as well as traffic shifts since February 2016.”

In the near-term, WFM stock very well could shed at least a little of today’s quickly gotten gains.

WFM stock chart

Whole Foods shares have jumped into overbought territory at the same time that WFM’s price is approaching previous price resistance around the $35 level, last reached in June 2016.

That said, Monday’s move did end up cracking all of its major moving averages, and could spark additional bullish signals if its shorter-term MAs begin to cross over their longer-term counterparts.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2017/04/whole-foods-market-inc-wfm-pops-10-big-activist-stake/.

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