UPDATE: Goldman Sachs Cuts Ratingon Whole Foods Market (WFM) to 'Sell'

Goldman Sachs downgraded Whole Foods Market (NASDAQ: WFM) from Buy to Sell with a price target of $31,implying 10% downside. Analyst Stephen Tanal thinks Whole Foods will grow stores, but not earnings.

"WFM is experiencing a competitive barrage, losing share in its core natural and organic business to a variety of players including COST, KR, and to a lesser extent, SFM. Trader Joe’s and The Fresh Market also appear to be taking share from WFM," said Tanal. "COST and KR, the largest of these challengers, are focused on delivering value: price and quality. COST dominates price, while KR boasts convenience as an added edge. Taken together, the group has raised the competitive bar in natural and organic: a differentiated product offering is no longer sufficient."

"Wellness has gone mass, and it is not coming back, never again to be relegated to niche specialty retailers serving price-insensitive, early adopters. We expect tough results rom WFM’s existing stores to more than offset profits from new store openings," continued the analyst. "We still see opportunity for store growth. Our capacity analysis, based on income, population, and educational attainment (WFM’s proprietary metric) suggests the chain could grow to 1,047 stores in the US, 2.4X its current footprint. We expect growth in stores, not in earnings."

Tanal added, "Weakness in the installed base offsets the contribution from new stores in our model, and we forecast a 3-year CAGR of -6% in EBIT and -2% in EPS."

For an analyst ratings summary and ratings history on Whole Foods Market click here. For more ratings news on Whole Foods Market click here.

Shares of Whole Foods Market closed at $34.57 yesterday.

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