As Whole Foods Market (WFM +0.00%) recently disappointed analysts and investors with its first-quarter earnings report for fiscal 2014, shares of The Fresh Market (TFM +0.00%) also traded lower in sympathy. However, the latter company has fared much worse over the last year and its stock is quickly approaching its 2010 IPO levels.
With more rapid growth and a cheaper valuation than Whole Foods Market, The Fresh Market is worth considering for long-term growth, especially in light of recent weakness.
Whole Foods earnings disappointment
For the first quarter of fiscal 2014, Whole Foods reported net income of $158 million, or $0.42 per share, and revenue of $4.24 billion. While these results represented rather solid growth year-over-year, they fell short of analysts' consensus estimates which called for earnings of $0.44 per share and $4.29 billion in revenue.
Perhaps even more disappointing was management's lowered guidance for the remainder of fiscal 2014. The company now expects EPS for the year of between $1.58-$1.65 per share, less than its previously lowered guidance of $1.65-$1.69 which was provided in November.
On average, analysts expected the company to earn $1.68 per share in fiscal 2014, which means Whole Foods would have to significantly beat its newly anticipated guidance to match that lofty expectation.
The company's revenue projection for fiscal 2014 was also lowered. Whole Foods management now expects sales growth of 11%-12% for the year, which is below the company's previous guidance of 11%-13%. The new revenue range of $14.3-$14.4 billion is also below the consensus estimate of $14.5 billion.
All in all, Whole Foods' latest earnings report was a disappointment, one that sent shares tumbling by over 8% in pre-market trading the following day. Shares of The Fresh Market also fell by over 1% in sympathy.
Is Fresh Market a buy?
With Whole Foods having disappointed and the two healthy grocers being so similar, many investors might overlook The Fresh Market. However, there is reason to consider The Fresh Market at current levels. The following table shows a breakdown of both companies' growth rates and valuation levels going forward:
|
Company |
The Fresh Market |
Whole Foods Market |
|---|---|---|
|
Revenue Growth 2014 |
17.2% |
12.4% |
|
EPS Growth 2014 |
18.1% |
13.3% |
|
Forward P/E |
20.08 |
25.98 |
*Fresh Market's fiscal year ends in January; Whole Foods' fiscal year ends in September.
As the data above indicates, both healthy grocers are expected to grow impressively over the following year, which bodes well for the segment as a whole. However, The Fresh Market is currently projected to lead its larger competitor by a wide margin in terms of both revenue and EPS growth in 2014.
Additionally, The Fresh Market, with a future 12-month P/E ratio of only 20.08, trades at a significant discount to Whole Foods. However, Whole Foods does pay a dividend of $0.48, which is equal to a yield of 0.90%, while The Fresh Market does not pay a dividend.
The healthy choice
The Fresh Market and Whole Foods Market have gotten off to a rocky start in 2014. However, both healthy grocers are still projected to grow at rates above 10% in all major categories, as the trend toward healthy living shows no signs of stopping anytime soon.
Since The Fresh Market is significantly smaller than Whole Foods, the company remains the better long-term growth investment and the analyst projections for fiscal 2014 directly reflect this. However, Whole Foods is still a viable growth investment in its own right, one that manages to pay a dividend as well. Accordingly, both companies should be considered for long-term growth in light of current weakness.
