Whole Foods Market Analysis Following Q2 2014 Results

Insight's Whole Foods (WFM) model has been undated.  If you go by WFM's 5 year top line and EBITDA margin guidance (with margin acceleration in the out years), my discounted cash flow model (DCF) gives about a $70.00 target.  If you believe that WFM EBITDA margins will compress to WMT's then it's about a $50 target.  To get to the current stock price you have to basically believe that WFM's business model is going to fall apart due to competition in the organic area.  WFM has now missed on the bottom line for two quarters so it doesn't have much credibility. The question also is whether there's value there from an M&A viewpoint.  Basically there's a big vacuum as the stock moves from growth investor's hands  to value investors hands.  The stock may be dead money for a while at least, but it's hard to believe that longer term their brand equity, relationship with suppliers, and employee culture do not have value.  I'm reading a good book about Bezos, The Everything Store,  which shows the great credence he puts in a low price business model, and how influenced he was by Sam Walton at Walmart.  WFM's business model is a premium price one which is a liability in spite of the strengths I mentioned above.

Philip I. Frank, Ph.D.

President and Portfolio Manager,

Insight Asset Management LLC

e-mail: insight-asset@earthlink.net