S&P Lifts Whole Foods to Investment Grade

Whole Foods Market, Inc. (NASDAQ: WFM) may be an expensive stock trading at a significant premium to traditional grocery store chains and also to most retailers.  Still, the company has managed to beat earnings estimates and guide its annual targets. Now it has been raised to “investment grade” by Standard & Poor’s on its corporate credit rating.

Whole Foods shares are up 0.5% at $94.75 against a 52-week range of $53.32 to $97.25.  Its market capitalization is now $17.5 billion, which compares to $12.3 billion for The Kroger Co. (NYSE: KR) and almost $4 billion for Safeway Inc. (NYSE: SWY).  The smaller specialty grocery chain of The Fresh Market, Inc. (NASDAQ: TFM) is still valued at under $3 billion.

In today’s report, Standard & Poor’s raised the prior rating of “BB+” to “BBB-” in the call.  Its outlook is now considered Stable and that implies that (barring anything grossly unforeseen) its rating is safe and secure at the ‘Investment Grade’ rating and the grounds for a future upgrade/downgrade were set.  In theory, this makes the cost of borrowing cheaper for corporations issuing debt.  The flip-side to this is that Whole Foods as it stands today does not likely need excess capital unless it is going to pursue a rapid aggressive strategy that is not known.

S&P’s outlook is based upon growth of smaller and more productive stores is driving considerable profit growth as a trend expected to last at least for the near term. Other highlights are 21% EBITDA growth, sizeable excess cash, significant discretionary cash flow, and an expectation that it will continue to outperform traditional grocery stores.

JON C. OGG