The Zacks Analyst Blog Highlights: Whole Foods Market, ValueClick, Google, Microsoft and Yahoo

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Nov 04, 2011, 09:30 ET

CHICAGO, Nov. 4, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Whole Foods Market Inc. (Nasdaq: WFM), ValueClick Inc. (Nasdaq: VCLK), Google Inc. (Nasdaq: GOOG), Microsoft Corp. (Nasdaq: MSFT) and Yahoo! Inc. (Nasdaq: YHOO).

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Here are highlights from Thursday's Analyst Blog:

Whole Foods Beats by a Penny

Whole Foods Market Inc. (Nasdaq: WFM) recently posted better-than-expected fourth-quarter 2011 results on the heels of strong sales as shoppers flocked to the grocery chain. The company has been gaining market share compared with other supermarket chains.

Let's Dig Deep

Austin, Texas-based Whole Foods said that quarterly earnings of 42 cents a share beat the Zacks Consensus Estimate by a penny, and jumped 27.3% from 33 cents earned in the prior-year quarter.

Whole Foods, one of the leading natural and organic foods supermarkets, sustained its top-line growth momentum with revenue climbing 12.2% to $2,353.8 million in the quarter but falling short of the Zacks Consensus Estimate of $2,360 million.

Consumers, who had cut back their spending during the recession, are now gradually returning to the chain. However, rising gasoline and food prices remains a matter of concern, since passing on increased costs to customers through price rise, may boomerang through a shift from higher priced organic products to cheaper private label brands. Therefore, the company must be observant while passing on extra burden to the consumers.

Effective inventory management and improved store-level performance have helped the company sustain the downturn and achieve improved sales and profit. Whole Foods has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last five fiscal years, gross margin has been in the range of 34% to 34.9%.

Whole Foods said that comparable-store sales rose 8.7% in the quarter flat compared with the prior-year quarter but up from 8.4% in the previous quarter. In the first five weeks of first-quarter 2012, comparable-store sales jumped 8.7%.

The company also notified that identical-store sales climbed 8.4% in the quarter compared with 8.7% in the prior-year quarter and 8.1% in the previous quarter. In the first five weeks of first-quarter 2012, identical-store sales jumped 8.2%.

Whole Foods indicated that adjusted EBITDA for the quarter surged 12.3% to $186 million, whereas EBITDA margin remained flat at 7.9%. Operating income for the quarter jumped 16.2% to $117.3 million, whereas operating margin increased 20 basis points to 5%.

Management Guided

Whole Foods now expects an increase of 13%-15% in total sales, underpinned by a 6.8%-8.8% rise in comparable-store sales and a 6.5%-8.5% growth in identical-store sales in fiscal 2012. Management projects EBITDA in the range of $960 million to $980 million, and expects operating margin between 5.7% and 5.8%. Capital expenditures are forecasted to be in the range of $410 million to $460 million.

The company predicts earnings between $2.21 and $2.26 per share for fiscal 2012. Analysts polled by Zacks, estimates fiscal 2012 earnings at $2.26.

Currently, we have a long-term Outperform rating on the stock. Moreover, Whole Foods holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.

ValueClick Crushes 3Q Estimates

ValueClick Inc. (Nasdaq: VCLK) reported third quarter 2011 earnings (including stock-based compensation but excluding amortization of intangibles) of 52 cents per share that stormed past the Zacks Consensus Estimate of 21 cents per share. Moreover, reported earnings rose 8.3% from 48 cents in the prior-year quarter.

Earnings on a non-GAAP basis (excluding both amortization of intangibles and stock-based compensation expense) came in at 55 cents per share, substantively above management's guided range of 27 cents to 28 cents. This also surpassed the year-ago earnings of 49 cents per share.

Revenues, adjusted EBITDA and earnings per share exceeded the company's previously-announced guidance.

Guidance

For the fourth quarter, management expects revenues in the range of $173.0 million–$179.0 million.

Management expects earnings on a non-GAAP basis to be in the range of 39 cents-41 cents per share. Adjusted EBITDA is expected in the range of $55.0 million–$59.0 million, which represents adjusted EBITDA margin of 32.4% at the mid-point.

The company expects revenues from Affiliate Marketing to grow in high-digit range. Owned & Operated websites are expected to increase in the low-double digits range. Technology is expected to grow in the high single-digit range. Media is anticipated to grow over 100.0% on reported basis, up in high teens to low twenties excluding the impact of acquisitions.

Management expects to scale down some of its low-margin businesses within the Owned and Operated segment and concentrate on the high-margin businesses in the Affiliate, Media and technology segments as it presents the company with tremendous growth opportunities to drive top-line in the forthcoming quarters.

Recommendation

Strength in the Internet advertising industry, increasing e-commerce spending, and improving display ad growth trends coupled with direct advertiser relationships with the Dotomi acquisition, share repurchases, impressive cash flow and a debt-free balance sheet are the positives for the company. The company's concentration in the high-margin businesses is expected to drive future growth prospects.

We also remain upbeat on ValuClick's growing Affiliate Marketing segment and expect a turnaround in its Owned and Operated business.

However, a sluggish macro-economic environment and intense competition from Google Inc. (Nasdaq: GOOG), Microsoft Corp. (Nasdaq: MSFT) and Yahoo! Inc. (Nasdaq: YHOO) remain near term headwinds.

We maintain our Neutral rating on the stock over the long term (6-12 months). Currently, we have Zacks #3 Rank for ValueClick, which translates to a short-term Hold rating.

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