Tax Reform in This Election Year: It's Not Likely
Walmart's New Health Food Push: Is It Too Hard to Swallow?"Whole Foods Market (NASDAQ: WFMI) has rallied recently due to two main factors: a better-than-expected earnings report released in early August coupled with a breakthrough on WFMI's deal to acquire rival Wild Oats Markets," notes Paul Tracy.
The editor of StreetAuthority Market Advisor, plains, ""Whole Foods reported same-store sales growth of 7% in the second quarter. That's not quite as strong as the 9% reported a year ago, but it still represents solid growth and was above what analysts had expected."
He adds that wWhile earnings fell on a year-over-year basis, that was due mainly to costs associated with WFMI's new store openings. These costs, he suggests, represent an investment in future growth; analysts had already been expecting these higher start-up costs, and Whole Foods' earnings actually beat consensus estimates by two cents.
Perhaps the more important news item, he contends, was a decision by a Federal judge to deny the U.S. Federal Trade Commission's (FTC) request to block WFMI's takeover of rival Wild Oats Markets.
Says Tracy, "The FTC has been seeking to block the deal, arguing that the merger would be anti-competitive and would result in higher prices for consumers. The FTC's arguments center on the definition of WFMI's market -- whether that market is grocery stores in general or, more specifically, organic grocery chains."
He adds, "WFMI is the nation's largest organic grocery chain. However, the firm is tiny compared to Safeway, Kroger and a host of other major grocery chains. And even after buying Wild Oats, WFMI will still be much smaller than these chains.
Says Tracy, "I continue to believe WFMI is a solid growth story with or without the proposed Wild Oats merger. WFMI benefits directly from Americans' growing interest in eating healthier foods -- sales of organic foods are currently growing at more than three times the pace of grocery sales in general."
The advisor concludes, "And if the Wild Oats merger eventually goes through, then the deal would give WFMI access to new markets and would allow the firm to expand its footprint. The judge's decision makes it far more likely this deal will be completed. With these points in mind, WFMI remains a solid 'Buy' at current levels."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.
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