ADVERTISEMENT

JEFFERIES: Whole Foods could ‘put a dent’ in Amazon’s profits

Amazon wasted no time cutting costs at Whole Foods stores, but the acquisition could effect the internet giant's near-term profitability, Jefferies says.

Amazon wasted no time making its presence known at Whole Foods stores across the country when it officially took over the grocer on Monday. Investors, though, didn't seem to think much of it: the stock is basically unchanged this week at around $961.

ADVERTISEMENT

Even over the long-term, Amazon’s stock price hasn't really celebrated this deal. Shares opened 0.6% lower on Wednesday than they closed the day before the deal was announced in mid-June. Jefferies analysts — who maintain one of the highest price targets for Amazon stock — $1200 versus a Wall Street consensus of $1150, say the purchase will put a dent in Amazon's earnings. That is partly to reflect that Amazon immediately went about cutting prices of staples at Whole Foods.

"We are lowering our FY17/18 EPS estimates to $2.48/$7.38 (from $3.68/$10.30) but raising total rev to $177Bn/$228Bn (from $171Bn/$213Bn) as a result of layering the Whole Foods (WF) model onto our prior AMZN estimates," the bank said in a note Tuesday. "While WF is only growing single digits, and also puts a dent into near-term profitability, we think this acquisition presents a series of attractive call options for other parts of the AMZN business."

To be sure, Jefferies is still very bullish on Amazon, whose stock is up 25% over the past year. But analysts Brent Thill, Brian Fitzgerald, and Michael Turrin warn that “macroeconomic headwinds could slow top-line growth and margin expansion.” It all comes down to what color management can give on the earnings call next month.

ADVERTISEMENT

FOLLOW BUSINESS INSIDER AFRICA

Unblock notifications in browser settings.
ADVERTISEMENT

Recommended articles

Nigeria's central bank increases minimum capital base for banks

Nigeria's central bank increases minimum capital base for banks

Sony’s creators convention redefines the creative landscape for content creators

Sony’s creators convention redefines the creative landscape for content creators

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

10 African countries with the lowest life expectancy according to the World Bank

10 African countries with the lowest life expectancy according to the World Bank

Kenyan women are more obese than their men - here’s why

Kenyan women are more obese than their men - here’s why

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

10 most dangerous African countries in 2024

10 most dangerous African countries in 2024

ADVERTISEMENT