Whole Foods deserves deeper scrutiny from investors, according to one of at least five analysts who lowered their ratings on the grocery chain's stock after it reported another disappointing quarter and lowered its 2014 earnings forecast again.
Shares of the Austin, Texas-based company tumbled Wednesday morning before markets opened and a day after it detailed second-quarter results that missed Wall Street's expectations.
Whole Foods Markets Inc. said its earnings were unchanged from a year ago at $142 million, or 38 cents per share. Revenue climbed but, like earnings, it also missed analyst expectations. The company also cut its 2014 forecast again after previously lowering it in November and in February.
"Virtually all of the metrics in Whole Foods' latest earnings were materially worse than our expectations," analyst Ajay Jain wrote in a Wednesday morning research note.
He lowered his rating on the stock to "sell" from "hold" and dropped his price target to $38 from $48. Jain noted that the company is now offering detailed guidance on earnings and store development plans through the 2018 fiscal year, but he said that will provide little consolation to investors who are wondering about significant near-term competitive threats.
"While we prefer not to pile onto the stock with this downgrade following more bad earnings news, we don't believe the stock has gotten a critical look from investors for quite some time," Jain wrote. "We believe (Whole Foods) finally deserves a lot more scrutiny."
Sterne Agee analyst Charles Grom lowered his rating on the stock to "neutral" from "buy." The analyst questioned the company's decision to speed up store growth against the more challenging backdrop that it faces.
"While we agree that there is still a big runway ahead, we think a more tepid approach is required," Grom wrote.
The company's stock started sliding Tuesday after markets closed. They were down nearly 18 percent, or $8.55 to $39.40, shortly before markets opened Wednesday. That would represent a 52-week low if it carries over in regular trading.