Whole Foods for Health & Wealth - Analyst Blog

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According to Market Watch, Leonard Green & Partners, the biggest share holder of Whole Foods Market Inc . ( WFM ), is willing to sell its 7.7% stake or 13.9 million shares in the company.

Back in November 2008, Leonard Green & Partners gained convertible preferred stock in the world's leading natural and organic foods supermarket for its $425 million investment in the company.

Later, the company converted its holding to gain a 17.4% stake or 30 million shares in Whole Foods.

Invest to Create Wealth

Whole Foods Market with its marketing and merchandising expertise offers investors one of the strongest growth profiles in the industry. The stock is poised to surge once the economy revives and demand for healthier and natural food improves.

Whole Foods has been spurring its sales through new store openings, acquisitions and comparable store sales growth. Given the fragmented food retailing industry, the company has a track record of successfully integrating regional acquisitions. The company's largest acquisition has been Wild Oats Markets, which helped to boost comps, margins and increase store counts, while lowering the risk of future expansion.

Moreover, the company's stringent cost-control measures, effective inventory management, and improved store-level performance are driving earnings growth. Whole Foods also has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last five fiscal years, gross margin has been in the range of 34% to 34.9%.

Historical Prices Supports the Outlook

In the last three years, share prices of Whole Foods showed a strong upward trend in the stock market, indicating a growth of almost 7 times. The stock price reached a closing price of $68.70 on December 20, 2011 compared with $9.89 as of December 19, 2008.


Going with the Market Watch story, during the last two years, Leonard Green & Partners sold 15.7 million of the company's shares from its holdings, thus taking approximately $540 million as pre-tax gain.

Moreover, if the private equity player sells the remaining 7.7% stake at the current prices it would gather approximately $746 million.

This would mark a return of almost 3 times the initial investment in Whole Foods.

Summing Up

The company's strong liquidity positions it well to drive future growth. The company during fourth-quarter 2011 generated cash flow from operations of $159.6 million and incurred capital expenditures of $93.4 million, resulting in free cash flow of $66.3 million.

Currently, we have a long-term Outperform rating on the stock. Moreover, Whole Foods, which competes with The Kroger Company ( KR ), holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.

KROGER CO ( KR ): Free Stock Analysis Report

WHOLE FOODS MKT ( WFM ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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