Surviving Whole Foods In a Walmart World

Tickers in this article: KR SHLD SWY TGT WFM WMT

NEW YORK (TheStreet) -- Grocery superstar Whole Foods Market's shine faded after the company reported disappointing earnings after the market closed Tuesday. The market reacted quickly, sending shares to less than $40 for the first time since July 2012.

In Jim Cramer's book Get Rich Carefully, he writes about buying shares in companies that beat estimates and raise guidance. It's a one-two punch combination that historically is very profitable. The flip-side is selling shares in companies that miss and lower their outlooks. Unfortunately for Whole Foods shareholders, more continued pressure should be anticipated.

WFM Chart

Analysts were quick to adjust, and no less than nine adjusted their outlook and or price targets.

  • Canaccord Genuity - Lowered price target from $63 to $49
  • Jefferies Group - cut rating from a buy to a hold and lowered price target from $61 to $46
  • Cantor Fitzgerald - lowered rating from hold to sell
  • BMO Capital Markets - lowered rating from outperform to market perform
  • Deutsche Bank - changed rating from buy to hold
  • Sterne Agee - cut rating from buy to neutral
  • Piper Jaffray - lowered rating from overweight to neutral


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Bucking the trend of downgrades, Argus views the falling share price as a buying opportunity and upgraded Whole Foods from hold to buy. Argus may prove it's the smartest analyst in the room, but investors should proceed with caution. I will explain why.

Enter the world's largest retailer, Walmart and its margin-destroying expansion into organic foods. Walmart isn't Whole Foods' only problem. Safeway , Target , Kmart , Kroger , and almost left-for-dead SuperValue are closing the competitive advantage gap.

About a month ago, Walmart and organic foods supplier Wild Oats announced that about half of Walmart's stores will stock 100 of Wild Oats' packaged foods on its shelves. Wal-Mart already carries more than 1,600 organic SKUs. Walmart's decision is problematic for Whole Foods for several reasons.