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Whole Foods: EBITDA Multiples Trading at a Discount

Whole Foods: EBITDA Multiples Trading at a Discount

. 2 min read

Whole Foods Market, Inc. (NasdaqGS:WFM) is expected to report earnings on Wednesday after the market closes. The company's shares last traded at $28.98 as of Tuesday, slightly above its 52 week low. fair value data implies that the stock is currently 22% undervalued while Wall Street's consensus price target of $30.50 implies 5% upside.
<img src='' alt= ‘WFM fair value estimate’>

Comparable Company Analysis

Whole Foods' revenue growth looks highly attractive when compared to its publicly traded peer group: Ingles Markets, Incorporated (NasdaqGS:IMKTA), The Kroger Co. (NYSE:KR), SUPERVALU Inc. (NYSE:SVU) and Weis Markets, Inc. (NYSE:WMK).

The company's 5yr revenue CAGR of 9.2% is above all of the comparable companies: IMKTA (1.2%), KR (6.0%), SVU (0.2%), and WMK (1.9%). Furthermore, when comparing Wall Street's consensus forecast for each company, Whole Foods' projected 5yr revenue CAGR of 5.3% is also above all of the comparable companies: IMKTA (2.2%), KR (4.3%), SVU (5.2%), and WMK (2.0%) .

<img src='' alt= ‘WFM revenue growth chart‘>

Whole Foods' EBITDA growth and margins also look compelling...

<img src='' alt= ‘WFM EBITDA growth and margin chart‘>

Outside of SUPERVALU, Whole Foods EBITDA growth has outperformed the entire peer group and is expected to continue over the next five years. The company also boasts top EBITDA margins of 8.6%.

Typically, higher growth stocks will trade at higher multiples of EBITDA but this isn't the case for Whole Foods. The company's multiples are currently trading at a discount to this comparable company group as illustrated in the chart below.

<img src='' alt= ‘WFM EBITDA multiples chart‘>

Whole Foods' LTM EBITDA multiple of 7.0x is only above SVU (3.4x) and below IMKTA (7.6x), KR (7.6x), and WMK (8.8x).

Final Notes

Whole Foods appears fundamentally undervalued relative to its comparable companies. Share prices also appear undervalued when inputting consensus Wall Street projections into various discounted cash flow (DCF) analyses and dividend discount models (DDM).

Value investors may want to take a closer look at the stock prior to earnings.

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Note this is not a buy or sell recommendation on WFM. It is purely an overview of the stock's underlying fundamentals so that investors can come to an informed decision.