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The Hot Stock: Whole Foods Market Jumps 29% – Barron's

Whole Foods Market (WFM) soared to the top of the S&P 500 today after it agreed to be purchased for $42 a share by Amazon.com (AMZN).


Whole Foods Market gained 29% to $42.68 today, while the S&P 500 finished little changed at 2,433.15.

Raymond James analyst Aaron Kessler and team consider Amazon’s strategic rationale for purchasing Whole Foods:

We believe the acquisition will help Amazon expedite penetration into the food and grocery market, a ~$700B market in the U.S. in 2016 with ~$630B coming from grocery stores. We believe food and grocery (especially fresh produce) is one of the few consumer
categories Amazon has not penetrated in a significant way thus far. We believe Whole Foods helps solve many of its online grocery distribution challenges especially for perishables (67% of Whole Foods sales) and quickly ramps Amazon’s grocery plans. To date, Amazon had just ~21 Amazon Fresh centers in the U.S. and 2 internationally, despite launching its first one in Seattle in 2008. Additionally, we believe the deal will help alleviate investor concerns on a significant CapEx expansion for Amazon Fresh. We believe the deal also helps Amazon: 1) leverage more data on consumer spending patterns and infrastructure requirements; 2) opportunity to further expand private label/exclusive brands (15% of retail sales for Whole Foods).

Whole Foods Market’s market capitalization rose to $13.6 billion today from $10.6 billion yesterday. It reported net income of $507 million on sales of $15.7 billion in 2016.

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