The price of food is going up. That much is not in question. What does have analysts scratching their heads; however, is how grocery stores will be impacted by that. On one hand, there’s the possibility that consumers will buy less as a consequence of the higher prices and the other is the possibility that grocery stores making larger margins will narrow their mark-ups in order to negate some of the change. Whatever the case may be, the evidence thus far indicates grocer’s do not appear to be struggling. Rather, many analysts are upgrading shares and declaring now the time to buy. Among the top performing grocer’s are Whole Foods (WFM), Fresh Market Inc. (TFM) and Ruddick Corp.(RDK)
Natural-foods retailers Whole Foods Market Inc. (WFM) looks appealing, at least according to the analysts at BMO Capital Markets. After reaching its highest level in five-years in the spring, the market instantly shifted out of Whole Foods favor. Overwhelmingly, the company was considered over bought and buying seemed to cease. Shares fell sharply, but at their lower levels, the appeal is rising again. BMO Capital Markets today upgraded Whole Foods to outperform from market perform and boosted their target price 8 percent to $65 a share.
Anxiety over Whole Foods success in April pushed shares down over 13 percent for the second quarter, well beyond the 3 percent losses faced by the S&P 500. Beyond being overbought, there was additional worry that the high prices at Whole Foods, often mocked as Whole Paycheck, would drive customers away in the event the market dipped again as it did in 2008 or gas prices gobbled up increasing amounts of cash.
The analyst Karen Short; however, no longer views this as a threat on Whole Foods success, assuming a more evolved customer with a commitment to eating organic that won’t be abandoned as easily as before. Shares are Whole Foods are now climbing their way back up on the basis of positive recommendations and stronger same-store sales than competitors.
Fresh Market Inc. (TFM) has also been benefitting from a recent upgrade. J.P. Morgan increased its rating on the company to overweight from neutral, upping its price target a massive 27 percent to $42 a share. Like Whole Foods, Fresh Market is tailored to a wealthier-than-average customer, meaning that factors like high prices at the pump or slightly more expensive food are unlikely to deter them from shopping regularly. The combination of a higher-income bracket shopper and new store growth, the company is currently looking at leases in California, are expected to bolster shares in the coming month. Fresh Market shares are still expensive; however, never having suffered losses as major as those endured by Whole Foods. TFM is still trading 32 times beyond 2011’s earnings estimates. That said, they are trading well beneath 52-week highs, down 10 percent from peak levels. In recent trading, trading has been strong.
Ruddick Corp (RDK) is a third grocery company that analysts are enthusiastic about. Ruddick, the holding company where Southern super market Harris Teeter resides, has been upgraded by Karen Short at BMO Capital Markets from “Market Perform” to “Out Perform”. Like the other two, Harris Teeter appeals to a more moneyed customer and is less likely to see a decline in sales than competitors geared toward middle-income buyers. At 200 stores, Harris Teeter is twice the size of Fresh Market but focused on a similar demographic. The North Carolina based Ruddick, also has holdings beyond the grocery store which could be a source of stability should Harris Teeter take a surprising turn for the worst. The company also operates thread maker American & Efird.
Ruddick’s price target has been raised to $50 from $38. Over the last 52-weeks shares have traded between $30.29 and $44.12.