Whole Foods Market, Inc. (NASDAQ: WFMI) is set to report earnings after the close of trading today.  We have Thomson Reuters targets of $0.18 EPS and $1.87 billion in revenue.  We will be paying close attention to the organic growth at the high-end grocer not just because it is closely watched by traders and investors interested in organic foods.  It was just on March 11 when we predicted that this could double off of lows, and it has already done that.  This makes analyzing today’s earnings rather difficult.

Earlier this year there were a series of upgrades, but this stock  has seen two downgrades now that its shares have risen so much and its valuations are stretched.  We expect some guidance from Whole Foods.  The estimates for next quarter are $0.19 EPS and $1.88 billion in revenues.  For Fiscal-2009 (Sept.), the estimates are $0.71 EPS and $8.04 billion.

You can see the logic behind the call for a double and why we thought that number might start getting stretched at current prices.  As we noted, “If you have gone to the organic and high-end grocer lately, you probably notice that it is packed with shoppers…”

The days of this one being hit hard by newer competition from Kroger Co. (NYSE: KR) and Safeway Inc. (NYSE: SWY) have already been seen, and the Wal-Mart (NYSE: WMT) effect has probably already been seen for the most part.

The good news is that now we can just analyze Whole Foods as a high-end luxury brand grocery store that has an extremely loyal following.  The bad news is that the valuations are now stretched considering the equity market valuations.  We also think that Whole Foods has to significantly beat estimates for the run to continue much higher.

You see, the difference between “our call for a double” and the actual double is that this actual double took about 18 months less than we thought.  At prices around $21.00 (after a 6% drop today), this trades at roughly 30-times expected September-2009 earnings estimates.  But it also trades at 0.35-times 2009 revenues.

On a forward basis, Kroger trades at under 11-times forward June-2010 earnings estimates and only 0.18 or so times the expected revenues.  We do not want to compare the Whole Foods model exactly to Kroger, as that is not the point.  But that does at least show some basic comparison.

We still like the company, but unless Whole Foods blows away earnings estimates and raises its guidance, this has all the earmarks for a stock that needs a breather after its earnings.  There is a wild card here, and a fairly large one.  This had almost 23 million shares listed as being in the short interest on its last look.  This represents more than 7-days worth of trading volume.

The threat of competitors offering the same goods elsewhere for much lower prices is not gone.  But after the bloodbath seen in the stock, the new impacts from that threat should be over.

The 52-week trading range is $7.04 to $34.08, and this was a $50 stock just about 20 months ago.

JON C. OGG

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