Whole Foods Market Inc. Valuation – October 2015 Update $WFM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Whole Foods Market (WFM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): 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 362 stores in the United States, Canada, and the United Kingdom. The Company’s offices are supported by its headquarters, regional offices, distribution centers, bakehouse 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.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of WFM – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,818,047,267 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.44 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 165.91% Pass
6. Moderate PEmg Ratio PEmg < 20 20.26 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.68 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.44 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.11 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

WFM value Chart October 2015

EPSmg $1.49
MG Growth Estimate 15.00%
MG Value $57.45
Opinion Undervalued
MG Value based on 3% Growth $21.64
MG Value based on 0% Growth $12.68
Market Implied Growth Rate 5.88%
Current Price $30.23
% of Intrinsic Value 52.62%

Whole Foods Market Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, inconsistent dividend record and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.70 in 2011 to an estimated $1.49 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.88% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Whole Foods Market Inc. (WFM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

WFM Charts October 2015

Net Current Asset Value (NCAV) -$0.45
Graham Number $20.54
PEmg 20.26
Current Ratio 1.44
PB Ratio 2.68
Dividend Yield 1.69%
Number of Consecutive Years of Dividend Growth 5



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Most Recent Balance Sheet Figures

Total Current Assets $1,804,000,000
Total Current Liabilities $1,257,000,000
Long-Term Debt $60,000,000
Total Assets $6,036,000,000
Intangible Assets $790,000,000
Total Liabilities $1,966,000,000
Shares Outstanding (Diluted Average) 360,500,000

Earnings Per Share History

Next Fiscal Year Estimate $1.65
Sep14 $1.56
Sep13 $1.47
Sep12 $1.26
Sep11 $0.97
Sep10 $0.72
Sep09 $0.43
Sep08 $0.41
Sep07 $0.65
Sep06 $0.71
Sep05 $0.50
Sep04 $0.50
Sep03 $0.40
Sep02 $0.35
Sep01 $0.30
Sep00 -$0.02
Sep99 $0.19
Sep98 $0.21
Sep97 $0.13
Sep96 -$0.07

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.49
Sep14 $1.34
Sep13 $1.14
Sep12 $0.90
Sep11 $0.70
Sep10 $0.57
Sep09 $0.51
Sep08 $0.55
Sep07 $0.59
Sep06 $0.54
Sep05 $0.44
Sep04 $0.38
Sep03 $0.30
Sep02 $0.23
Sep01 $0.17
Sep00 $0.10
Sep99 $0.14

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – August 2015
The 8 Best Stocks For Value Investors This Week – 8/8/15
Whole Foods Market Inc. Analysis – August 2015 Update $WFM
21 Companies in the Spotlight This Week – 5/9/15
Whole Foods Market Inc. Quarterly Valuation – May 2015 $WFM

Other ModernGraham posts about related companies

Kroger Company Analysis – 2015 Update $KR
Whole Foods Market Inc. Quarterly Valuation – May 2015 $WFM
Whole Foods Market Inc. Quarterly Valuation – February 2015 $WFM
Safeway Inc. Quarterly Valuation – December 2014 $SWY
Whole Foods Markets Inc. Quarterly Valuation – October 2014 $WFM
Whole Foods Market Inc. Quarterly Valuation – July 2014 $WFM
Kroger Company Annual Valuation – 2014 $KR
Whole Foods Market Inc. (WFM) Quarterly Valuation – April 2014


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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