June 1, 2012
Consumer Goods
Whole Foods Market, Inc.
Ticker: WFM
Recommendation: Sell
Current Price: $88.61
Implied Price: $82.99
Investment Thesis
Key Statistics
52 Week Price Range
50-Day Moving Average
$53.32 - $91.50
$XX.XX91.50
$85.61.
Estimated Beta
1.08
Dividend Yield
.56 (.60%)
Market Capitalization
$16.02 million
3-Year Revenue CAGR
27.00%

Whole Foods will experience strong organic growth moving into the future
as they continue to grow domestically and possibly internationally

Whole Foods has a strong brand image and a very strong market share in
the organic and natural food market.

Whole Foods continues to set the bar in the organic food market with its
cost saving initiatives as well as its quality standards.

The market has already priced in these factors, and now is a good time to
sell the position.
Trading Statistics
Diluted Shares Outstanding
190.5 million
Average Volume (3-Month)
1.575 million
Institutional Ownership
86.40%
EV/EBITDA
15.37x
Insider Ownership
0.83%
Forecast Summary
UOIG Projections
Net Sales ($T)
Margins and Ratios
Earning per Share ($)
2010 A
2011 A
Q1 2012 A
Q2 2012 A
Q3 2012 E
Q4 2012 E
2012 E
$9,005,794.0 $10,107,787.0 $3,390,940.0 $2,670,282.0 $3,006,500.0 $2,505,694.1 $11,573,416.1
$1.38
$1.91
$0.65
$0.64
$0.57
$0.52
$2.27
Consensus Estimates
Gross Margin
36.31%
Net Sales ($T)
Earning per Share ($)
EBITDA Margin
10.34%
Net Margin
4.41%
Debt to Enterprise Value
0.12%
Covering Analysts: Nick Hubert
$9,005,800.0 $10,107,700.0 $3,390,900.0 $2,670,300.0 $2,731,000.0 $2,883,500.0 $11,672,500.0
$1.42
$1.93
$0.65
$0.64
$0.60
$0.57
$2.46
1
University of Oregon Investment Group
University of Oregon Investment Group
June 1, 2012
Business Overview
In 1978, John Mackey and Rene Lawson Hardy decided to open a small natural
foods store named SaferWay in Austin, Texas. Two years later, they merged
with Clarksville Natural Grocery, owned by Craig Weller and Mark Skiles, to
create Whole Foods Market (WFM). Whole Foods completed its initial public
offering in January, 1992 and is traded on the NASDAQ. Today, WFM is the
world’s leading natural and organic food retailer. They are headquartered in
Austin, Texas and currently operate 324 stores spread through the United States,
with a small amount located in Canada and the United Kingdom.
Whole Foods prides itself on being a mission driven company with a focus on
creating wellness for all individuals by providing high quality, wholesome
foods. Through this mission, WFM has been the leader in the natural and
organic food movement throughout the United States.
Core Values
Whole Foods attributes much of their success to a list of seven core values.
WFM believes that these core values have played a large role in their growth
and help to drive profit:
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
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Selling the highest quality natural and organic products available;
Satisfying and delighting its customer;
Supporting team member happiness and excellence;
Creating wealth through profits and growth;
Caring about its communities and its environment;
Creating ongoing win-won partnerships with its suppliers; and
Promoting the health of its stakeholders through healthy eating
education.
*Whole Foods 10K
Product Breakdown
2009
2010
2011
Prepared foods and bakery
18.80%
18.80%
19.10%
Other perishables
48.00%
47.70%
47.10%
100.00%
100.00%
100.00%
Total sales
Whole Foods Market offers a broad range of natural and organic products with a
focus on perishables. Their offerings include: produce, seafood, grocery, meat
and poultry, bakery, prepared food and catering, specialty (beer, wine, and
cheese), coffee and tea, nutritional supplements, vitamins, body care,
educational products, floral items, pet products and household products.
Natural vs. Organic
Whole Foods sells both natural and organic products, but an important
difference must be pointed out between the two. Natural foods are very
minimally processed, largely free of artificial ingredients, preservatives and
other non-naturally occurring chemicals. In other words, natural foods are the
closest one can get to the source. One result of this minimal processing is higher
water content in the foods which leads to a shorter shelf life.
Organic foods, on the other hand, are grown through methods that are intended
to be sustainable and beneficial for the earth. In addition, organic foods must
undergo a stringent USDA certification process. Also, retailers must implement
handling and storage measures that ensure the organic integrity of the product.
The general standards for producing organic foods are as follows:


Agricultural management practices intended to promote and enhance
ecosystem health;
No genetically engineered seeds or crops, sewage sludge, long-lasting
pesticides, herbicides, or fungicides;
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
Livestock management practices intended to promote healthy,
humanely treated animals by providing grown feed, fresh air, and
outdoor access while using no antibiotics or growth hormones; and
 Food-processing practices intended to protect the integrity of the
organic product and disallow irradiation, genetically modified
organisms, or synthetic preservatives.
(Whole Foods 10K)
Due to the stringent regulations and stamp of approval by the USDA, organic
foods generally have a higher demand than natural foods, although one trade-off
of organic foods is a higher price due to higher production costs.
Store Brands
Whole Foods offers its own line of products called 365 Everyday Value. This
line of products is specially created to meet all of the standards in place at
Whole Foods, as well as to provide a great value to the customers. Products
range from baking needs to pet care and touch on just about everything in
between. Additionally, Whole Foods has created the 365 Organic Everyday
Value line which gives customers the opportunity to purchase certain organic
products without having to pay the typical organic food price tag. These value
brands help to set Whole Foods apart in the expanding organic food industry by
providing customers with the ability to satisfy their desire for organic foods
while not requiring their whole paycheck to do so. Total sales of these products
made up approximately 11% of retail sales for both fiscal years 2011 and 2010.
Store Design
Each Whole Foods store is unique in its design, because each store is designed
to reflect the local community in which it is located. This is accomplished by
integrating the outward appearance of each store into the community, and by
giving the inside of each store a colorful, local flare through the use of locally
made art and design. Whole Foods strives to take away the monotony of grocery
shopping by making it a dynamic experience for the customers. Additionally,
they desire to make their stores a third place for people to interact outside of
their home and office. They do so by incorporating sit-down dining areas, open
kitchens, scratch bakeries, and customer comment boards. Whole Foods is
focused not only on providing healthy food choices for their customers, but also
on inspiring healthy lifestyles through interaction and learning.
Strategic Positioning
Quality Standards
Whole Foods consistently implements new quality standards that go above and
beyond the standards already in place through the USDA. These standards help
to truly differentiate Whole Foods from its competitors by providing customers
with a quick and easy way to ensure that their food is of the highest quality. An
example of this is The 5 Step Animal Welfare Rating Standards which can be
seen to the left. Similar criteria are in place for almost all products that Whole
Foods carry including their Eco-Scale for household cleaning products and their
Seafood Quality Standards. Each standard is color coded so that customers can
quickly determine where each product sits on the scales, and where each product
came from.
Store Operations
Whole Foods currently employs 64,200 team members and they believe that a
successful store starts with the employees and leaders within the store itself.
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Each store is split into 10 teams. Each team is led by a single team leader and is
responsible for a separate operating segment of the store. Teamwork is greatly
encouraged, and all levels of management are in constant contact. Management
desires to create a shared sense of drive through all levels of the business by
creating a “shared fate” between team members and shareholders. This is
accomplished through a Gainsharing program. Basically each team has a budget,
and if they are able to come in under budget then the extra money is dispersed
among the team members with a small amount set into a savings pool for the
team. Adversely, if the team comes in over budget, the deficit is made up using
the money from the savings pool. This system creates an incentive for team
members to increase sales and keep costs low at every store.
Win-Win Supplier Relationships
As seen in the Core Values, Whole Foods seeks to create win-win relationships
with their suppliers. They work hard to make develop contracts that benefit both
sides. Additionally, they work closely with local farmers and currently purchase
from over 2,000 local farmers through various suppliers. Whole Foods strives to
change the market as a whole, resulting in a desire for suppliers to work with
them. This gives them the opportunity to negotiate with their suppliers while
still creating benefit on both sides. This greatly sets them apart from other
grocers and supermarkets who do not work as hard to benefit their suppliers.
Business Growth Strategies
Historical Acquisitions
In the past, Whole Foods relied on large acquisitions to fuel their growth. Their
largest acquisition was the purchase of Wild Oats in 2007 which helped them
gain a large percent of market share in the organic food industry. Additionally,
Whole Foods purchased Fresh and Wild in 2005. Fresh and Wild was an organic
food store based in the United Kingdom, and the acquisition of them gave
Whole Foods the opportunity to branch into the emerging organic and natural
food market. Despite the multiple historical acquisitions, Whole Foods has
entered into a much more organic growth strategy.
New Store Openings
The main driver of growth into the future for Whole Foods will be through the
opening of new stores. Whole Foods has created an opportunistic real estate
strategy in which they look for store located in high traffic areas ranging
anywhere from 25,000-50,000 square feet. Additionally, they seek areas that
contain 200,000 or more people within a twenty minute drive. Each new store
must clear an internal Economic Value Added hurdle before a decision is made.
This hurdle is based on their internal weighted average cost of capital, is
expected to be cumulatively positive Economic Value Added in five years or
less.
Whole Foods significantly trimmed their development pipeline during the
recession as the created their new growth strategy. Moving forward, they
currently have 70 stores in the development pipeline with an estimated 24-27
new stores opened during fiscal year 2012. Whole Foods expects much more
sustainable growth throughout the next couple years with an increasing number
of stores being opened each year. Whole Foods believes in the possibility of
1000 stores giving them plenty of room to grow from their current state of 324.
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Industry
Overview
Technically speaking, Whole Foods fits into the grocery and supermarket
industry which makes up a majority of the food retail market in the United
States. Business models for this industry tend to be relatively simple with little
product differentiation. Whole Foods does not really act like the other stores in
this industry and they operate within their own niche of the industry by
specializing in organic and natural foods This greatly sets them apart from other
grocery stores as they experience growth that is unmatched by any other grocer.
Additionally, their margins are much better than that of other grocery stores
giving them the opportunity to continually reinvest and fuel their growth.
Potential growth within the organic food industry is quite large, and there is the
potential for other grocery stores to begin to capitalize on this.
Macro factors
Per Capita Disposable Income
When an economy is in a recession, consumers limit purchases to staple items.
As a result, the demand for more expensive items, such as the organic products
that Whole Foods sells, will decrease. As the economy comes out of the
recession, consumers will have more disposable income which will lead to an
increase in spending on gourmet items.
This driver is expected to increase throughout the year. Whole Foods should
benefit from the increase in this driver, because most of the products that Whole
Foods sells fall into the higher end gourmet category.
Consumer Sentiment Index
During a recession, consumer sentiment is decreased which results in reduced
spending. Decreased consumer sentiment is bad for Whole Foods, because it
will lead to less spending overall, which will result in less revenue as seen
throughout the recession. This driver is expected to increase as the economy
recovers which presents the opportunity for Whole Foods to expand its sales in
the coming year.
Population
Increased population in any given area will lead to an increase in the demand for
supermarkets and grocery. More specifically, the type of people that make up a
population will determine what kinds of stores are demanded. For example, a
population that is made up of mostly younger aged people will want a quicker
and more convenient store. On the other hand, older populations are looking
more for the typical grocery store that offers better value with less ready-made
food.
Whole Foods has taken this driver into account in their real estate plan. As
stated before, when looking for locations Whole Foods seeks out places with
200,000 or more people within a twenty minute drive. Additionally, Whole
Foods seeks to open stores in areas with large numbers of college-educated
people. This is due to the fact that most college educated people are more aware
and conscious of what they eat, and will more likely shop at natural and organic
markets. In addition, college-educated consumers generally receive a higher
income.
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Cost of Inputs
The cost of inputs has a very large effect on the grocery industry. Commodity
prices can be volatile, and a small increase in these inputs could squeeze the
already tight margins of the grocery industry even tighter. Additionally, righter
USDA regulation over organic foods could lead to higher cost of inputs which
would also drive down revenue.
Competition
The main competitors of Whole Foods are privately held companies with the
major players being Trader Joe’s and New Seasons. Trader Joe’s is the biggest
competitor with 375 stores and a very similar product offering to that of Whole
Foods. Trader Joe’s generally runs smaller stores compared to Whole Foods, but
either company has the opportunity to dominate the market share. The Fresh
Market is a publically traded competitor that is very similar to Whole Foods, but
they are much smaller in size and have significantly less market share.
In addition to the direct competitors listed above, regular supermarkets are also
trying to break into the organic food industry. Companies like Safeway are
beginning to offer their own line of organic and natural foods. These larger firms
have the ability to sell organic foods at a lower price due to their ability to
leverage better prices. This poses a significant risk for smaller organic foods
stores, because they do not have the same leverage as the larger industry players
and must charge more to keep their margins large enough to operate.
For a company to succeed in the organic food industry they must differentiate
their product from that of their competitors. They can do so by providing a
wider selection of organic and natural products. Whole Foods has their product
differentiation to a whole new level with the quality standards that they have
developed. The idea behind the quality standards is to be completely transparent
with consumers in how their food was produced and where it is from. This
creates a higher demand for their product, because people want to shop at a
place that they can trust to provide this with consistent quality. Additionally,
stores have to create a dynamic atmosphere that adds a different level of
enjoyment to the shopping experience. If a company can combine create a mix
of differentiated products with a solid brand image, and then they will be
successful in this industry.
Management and Employee Relations
John Mackey, Co-CEO and Director
John Mackey co-founded Whole Foods Market in 1978 and served as Chief
Executive Officer until May 2010. He acted as President from 2001 to 2004, and
he served as Chairman of the Board from 1978 through December 2009. John
Mackey was recently named one of the top twelve greatest entrepreneurs of our
time by CNN Money. He receives $1 salary per year, which began back in 2006.
John Mackey strives for the success of the company, and this small salary is just
one of his ways of showing how strongly he believes in Whole Foods.
Walter Robb, Co-CEO and Director
Walter Robb joined the Whole Foods team in 1991 as a store operator in Mill
Valley, California. He was promoted to president of the Northern Pacific Region
in 1993. He worked his way up the ranks throughout the subsequent years and
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was named Co-President in 2004. As of May 2010 he acts as Co-CEO and
Director alongside John Mackey.
Dr. John Elstrott, Independent Chairman of the Board
Dr. Elstrott has served as a director of Whole Foods since 1995. He served as
lead director from 2001 through 2009, and he has served as Chairman of the
Board since then. Dr. Elstrott brings more than 40 years of entrepreneurial
experience toe the table. He has been a professor of entrepreneurship, and he
was the founding director of the Levy-Rosenblum Institute for Entrepreneurship
at Tulane University’s Freeman School of Business.
Management Guidance
Management struggled with guidance throughout the recession, but has since
stabilized and been much more accurate. Recently, management has consistently
beat guidance, with a second quarter ending earlier this month. Management
generally reports guidance on the conservative end of analyst expectations, and
they will most likely continue to do so in the future.
Recent News
May 2, 2012-Whole Foods Market Raises FY 2012 Guidance
(Reuters.com)
WFM had a record quarter two earnings, and fiscal year guidance has been
increased as a result. They set records in many aspects of the company with a
very notable one being a 36% gross margin. As a result, revenue growth and
EPS estimates have been increased. This resulted in an immediate increase in
their stock price during the days following the conference call, and it should
continue to have a positive pull on the price as investors expect record earnings
this fiscal year.
March 30, 2012- Whole Foods to Stop Unsustainable Wild-Caught Seafood
Sales by Earth Day
(Huntington Post)
The move to stop selling unsustainably caught fish further shows Whole Foods’s
commitment to the natural and organic cause. They have a goal of reversing the
trend of overfishing in favor of more sustainable methods. The decision stems as
a result of greater consumer awareness about where their food comes from, and
it falls perfectly in line with Whole Foods’s quality standards. In the short run
this could cause an increase in prices, but it should be good for the company as a
whole as it drives up demand for their product.
April 9, 2012-The 12 Greatest Entrepreneurs of Our Time.
(CNN Money)
Whole Foods’s ability to perform has been strongly correlated with its
leadership and their ability to respond to difficult situations. This article shows
John Mackey among a list of other influential leaders as someone who is able to
lead his company in the right direction. Investors want to buy into a company
that they can trust, and positive publicity such as this could have a positive
effect on the stock by increasing consumer confidence in the company.
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Catalysts
Upside
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New business growth strategy resulting in more mature stores and
lower startup cost.
Possibility of expansion into emerging markets.
Cheaper commodity prices could increase margins.
Win-win supplier relationships could lead to increased ability to
leverage prices and increase margins.
Increase in organic food trend could lead to more new customers.
Downside
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Increased competition, especially from larger grocery chains, could
have very negative effects their ability to grow.
Decrease in availability of natural and organic foods due to
uncontrollable weather events could lead to a shortage of supply and
smaller margins.
Decreasing sales in identical stores results in inability to open new
stores and drive revenue growth.
Decrease in organic food trend leading to a decreased demand for their
product.
Comparable Analysis
Whole Foods has very few direct competitors, and the companies that do
directly compete with them are either much smaller or not publicly traded. For
the comparable analysis I looked for companies that are experiencing similar
growth. Additionally I looked with similar values and customer bases, similar
risks, and similar brand image.
The comparable analysis was performed using forward looking multiples taken
from FactSet. The EV/EBIT was weighted 20%, EV/EBITDA weighted 60%,
and P/E weighted 20% to complete the analysis.
United Natural Foods, Inc. (UNFI) – 30%
“United Natural Foods, Inc., together with its subsidiaries, engages in the
distribution and retail of natural, organic, and specialty foods, as well as nonfood products in the United States and Canada. The company distributes
approximately 60,000 products in 6 product categories, including grocery and
general merchandise, produce, perishables and frozen foods, nutritional
supplements and sports nutrition, bulk and food service products, and personal
care items. It operates 12 natural products retail stores within the United States.
The company also involves in importing, roasting, packaging, and distributing
nuts, dried fruits, seeds, trail mixes, granola, natural and organic snack items,
and confections, as well as offers the Blue Marble Brands products through bulk
sale and private label packaging arrangements. Its customers include
independently owned natural products retailers, supernatural chains,
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conventional supermarkets, and mass market chains, as well as foodservice and
international customers outside Canada. The company was founded in 1976 and
is headquartered in Providence, Rhode Island.” (Yahoo! Finance)
United Natural Foods, Inc. was chosen as a comparable due to their relationship
with Whole Foods and their focus on organic and natural foods. UNFI recently
signed a contract to be the main distributor for dried grocery and frozen food
through 2020. They are exposed to the same risk factors as Whole Foods, and
they should experience similar growth along with them. Due to its similarity and
exposure to Whole Foods, UNFI was given a 30% weighting.
Panera Bread Co. (PNRA) – 20%
“Panera Bread Company, together with its subsidiaries, owns, operates, and
franchises retail bakery-cafes in the United States and Canada. Its bakery-cafes
offer fresh baked goods, sandwiches, soups, salads, and custom roasted coffees,
and other complementary products, as well as provide catering services under
the Panera Catering name. The company also provides fresh dough, produce,
tuna, and cream cheese items, as well as sweet goods items through its
company-owned and franchise-operated bakery-cafes. As of December 27,
2011, it operated 740 company-owned bakery-cafes and 801 franchised bakerycafes under the Panera Bread, Saint Louis Bread Co., and Paradise Bakery &
Cafe names. The company was founded in 1981 and is based in St. Louis,
Missouri.” (Yahoo! Finance)
Panera Bread Company was chosen as a comparable due to its similar growth
and market risk to Whole Foods. Both companies have very strong brand image,
and both cater to the same customer base. Both companies have a strong focus
on natural foods and a healthy lifestyle. Although Panera has many factors that
are similar to Whole Foods, they operate in a different industry which is why
they were assigned a weighting of 20%
GNC Holdings, Inc. (GNC) – 10%
“GNC Holdings, Inc. operates as a specialty retailer of health and wellness
products. Its products include vitamins, minerals, and herbal supplement
products, as well as sports nutrition and diet products. The company sells its
products under its GNC proprietary brands, including Mega Men, Ultra Mega,
GNC Total Lean, Pro Performance, and Pro Performance AMP, as well as under
third-party brands. As of December 31, 2011, it had approximately 7,600
locations, including approximately 5,900 retail locations in the United States
comprising 924 franchises and 2,125 Rite Aid franchise store-within-a-store
locations; and franchise operations in 53 countries. GNC Holdings, Inc. sells its
products through company-owned domestic retail stores, domestic and
international franchise activities, third-party contract manufacturing, ecommerce, and corporate partnerships. The company is headquartered in
Pittsburgh, Pennsylvania.” (Yahoo! Finance)
GNC Holdings, Inc. was chosen as a comparable due to its similarities to Whole
Foods in terms of growth rate, brand image, and risk factors. GNC is focused on
supporting healthy lifestyle choices through the use of their health and wellness
products. Both Whole Foods and GNC sell supplements, vitamins, and other
health products. GNC is much smaller than Whole Foods and does not have the
same market share as Whole Foods. For these reasons, GNC has been assigned a
10% weighting.
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The Fresh Market (TFM) – 40%
“The Fresh Market, Inc. operates as a specialty grocery retailer. The company
offers various perishable product categories, including meat, seafood, produce,
deli, bakery, floral, sushi, and prepared foods; and non-perishable product
categories, such as traditional grocery and dairy products, as well as specialty
foods, which include bulk, coffee and candy, and beer and wine. As of March
20, 2012, it operated 115 stores in 21 states located in the southeast, Midwest,
mid-Atlantic, and northeast of United States. The company was founded in 1981
and is headquartered in Greensboro, North Carolina.” (Yahoo! Finance)
The Fresh Market is the most similar company to Whole Foods. They compete
with Whole Foods in the organic and natural food market. Additionally, TFM is
expected to experience similar growth as well as similar risk factors. Their brand
image well developed, yet not as well-known as Whole Foods at this point in
time. TFM has the highest weighting due to its similarities to Whole Foods in
terms of revenue growth and business model.
The comparable Analysis yields a slight undervaluation of 5.89% resulting in a
price target of $93.83.
Discounted Cash Flow Analysis
In order to project future cash flows, I used management guidance, industry
trends, and my own assumptions about the company. 2012 projections are based
off of Management Guidance and subsequent projections are based off of
percent of sales and trended accordingly. The DCF analysis yields an implied
price of $49.33 and an overvaluation of 44.79%.
Revenue Model
New stores
The projection of new stores is based mainly off of management guidance and
number of stores in the development pipeline. Additionally I made my own
assumptions about how many stores can reasonably be opened in one year
without acquisitions. Additionally I took into account the point at which I think
to be the industry saturation point for Whole Foods as competitors start to enter
the market.
Total Square Footage
Total Square footage was projected mainly using management guidance. Whole
Foods looks to open stores between 25,000 and 50,000 square feet, but ideal
stores range from 35,000 through 45,000 square feet. Recently new stores have
been averaging 35,000 square feet, and I trended square footage per store
towards a value closer to 40,000 square feet.
Total Revenue
Total Revenue was projected using a few different methods. Management
guidance was used for the next year, and the following years were projected
based off of revenue per stores and revenue per square foot. Revenue growth
follows the trend of total stores, and eventually trends down to percentages
closer to that of the regular, saturated grocery industry.
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Beta
SD
Weighting
3 year daily
1.10
0.06
20.00%
1 year daily
1.07
0.06
20.00%
3 year weekly
1.10
0.13
20.00%
5 year weekly
1.09
0.11
20.00%
1 year daily Hamada
1.04
Whole Foods Market, Inc. Beta 1.08
20.00%
June 1, 2012
Beta
Beta regressions were ran against the S&P 500, and time periods and frequency
were chosen based off of events in the company history and the desire to get a
measure of the company’s volatility post-recession. Additionally, I elected to
run a one year daily Hamada beta to get a better sense of Whole Foods’s risk
compared to other companies with more leverage. All five resulted came out
very close, and I took an equally weight average of them as a result.
Cost of Goods Sold
Cost of goods sold contains cost of inventory sold, distribution and food
preparation costs, and shipping and handling costs. Cost of goods sold was
projected using a percent of sales and eventually trended upward due to
increased input costs and competition.
Direct Store Expenses
Direct store expenses mainly consist of asset impairment charges and worker’s
compensation initiatives at the store level. Depreciation and amortization are
also found in their Direct Store expense. I projected them using a percent of
sales and trended them up as the amount of team members and locations
increases.
General and Administrative Expense
The general and administrative expense consists mainly salaries and benefits
cost and other related costs associated with corporate support. It is projected as a
percent of sales and trended upward the number of employees and wages
increase.
Pre-Opening Expense
These expenses include rental cost during construction, hiring and training costs,
and supply costs. They were projected forward using a percent of sales and
follow the trend of new stores being opened in each year and pre-opening
expense per new store.
Relocation, Store Closures, and Termination Expense
These expenses include moving costs, remaining lease payments, asset
impairment, and other costs that go along with closure of facilities. These
expenses are a very small percent of revenue with no indication of moving either
way. Thus, I decided to project them as an average of the past two years.
Depreciation and Amortization
Whole Foods includes depreciation and amortization in the direct stores
expense. They depreciate their assets suing the straight line method, and I
projected them based off of capital expenditures using the depreciation table.
Working Capital
Working Capital was projected to keep assets and liabilities generally in line as
a percent of sales. Accounting methods were used for projections where
applicable.
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Capital Expenditures
Capital Expenditures
New Store Development
Remodeling and maintenance
Total
2009
2010
2011
$ 248,000 $ 171,400 $ 203,500
$ 66,600 $ 85,400 $ 161,500
$ 314,600 $ 256,800 $ 365,000
Capital expenditures are split into two categories. The first expenditure is based
off of new store development. The second expenditures include maintenance
and remodeling costs. Capital expenditures were projected using a few methods.
First, I calculated the historical average over the past three years which
represents their growth strategy. Second, I calculated new store costs per store
and remodeling costs per store. An average of all of these calculations provided
me with my capital expenditures projections which largely follows the amount
of new stores per year.
Tax Rate
No guidance was given on the tax rate going out into the future, but I projected
it forward at an increasing rate in correlation with increases in revenue and
taxable income over time.
Exit Multiple
The price that Whole Foods is currently trading at appears to be derived using a
comparable analysis. For this reason an exit multiple was calculated in order to
find a closer value to what WFM is actually trading at. The multiple was
calculated using the weighted average EV/EBITDA of the comparable
companies. This number was then multiplied by the 2016 EBITDA value to
determine the terminal value. The analysis resulted in an implied price of $83.63
Recommendation
Whole Foods is a very good company. They have experienced great growth over
the past few years, and they are projected to grow at an even faster rate for the
next few years. They have developed good supplier relationships which allow
them to continue to lever good prices. Whole Foods has a very strong brand
image, and they are the front runner in the organic and natural foods industry. I
believe that the market has recognized this throughout the past year, and is
reflected in the company’s stock price. Whole Foods has been a great performer
for the Svigals’ and Tall Firs, but now is a good time to sell the position.
Final Valuation
Discounted Cash Flow analysis
Exit Multiple
Comparable Analysis
Price Target
Current Price
Overvaluation
Final Valuation Weighting
$
62.80
35.00%
$
93.96
15.00%
$
93.83
50.00%
$ 82.99
$ 88.61
-6.35%
UOIG 12
University of Oregon Investment Group
June 1, 2012
Appendix 1 – Comparable Analysis
($ in thousands)
Stock Characteristics
Current Price
50 Day Moving Average
200 Day Moving Average
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Growth
Revenue Growth 2012E
Revenue Growth 2013E
EBITDA Growth 2012E
EBITDA Growth 2013E
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Valuation
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
WFM
Whole Foods
Market, Inc.
Max
$146.95
154.50
149.32
1.08
Min
UNFI
PNRA
GNC
United Natural
GNC Holdings
Foods, Inc.
Panera Bread Co.
Inc.
30.00%
20.00%
10.00%
$50.70
$146.95
$38.53
49.06
154.50
37.63
43.88
149.32
31.91
0.97
0.88
0.93
TFM
The Fresh
Market
40.00%
$58.12
50.24
44.96
1.07
$38.53
37.63
31.91
0.88
Weight Avg.
$71.70
69.48
64.20
0.99
Median
$58.12
50.24
44.96
0.95
$88.61
85.61
77.02
1.08
900,000.00
1,380,000.00
4,389,000.00
587,000.00
0.00
438,927.09
36,847,928.87
35,325,928.87
0.00
0.00
10,681.00
0.00
0.00
28,448.93
2,494,785.98
2,703,960.98
70,688.60
115,806.50
76,738.40
0.00
0.00
50,588.45
3,122,213.81
3,231,970.51
1,592.00
64,000.00
201,574.00
0.00
0.00
49,206.82
4,175,594.67
3,954,155.67
346.00
18,882.00
175,375.00
0.00
0.00
190,148.88
16,849,092.17
16,692,945.17
235,098.00
813.00
26,736.00
0.00
0.00
49,206.82
2,494,785.98
2,703,960.98
0.00
0.00
221,439.00
0.00
0.00
28,448.93
4,175,594.67
3,954,155.67
1,592.00
899,626.00
201,574.00
0.00
0.00
108,668.24
4,186,987.25
4,886,631.25
0.00
64,000.00
10,681.00
0.00
0.00
48,174.48
2,799,900.89
2,853,219.89
17.0%
17.7%
29.1%
21.9%
9.8%
6.4%
11.2%
10.9%
15.5%
13.8%
19.5%
17.0%
15.0%
10.6%
18.3%
12.6%
15.5%
12.0%
26.0%
14.2%
13.9%
10.6%
16.1%
12.6%
15.0%
13.2%
18.3%
16.5%
15.1%
8.6%
29.1%
11.5%
17.0%
17.7%
20.2%
21.9%
61.47%
16.69%
18.77%
8.56%
11.26%
2.84%
3.75%
1.74%
34.74%
8.13%
10.94%
4.93%
33.40%
7.31%
11.14%
4.84%
35.62%
10.25%
9.04%
3.91%
17.76%
3.11%
3.86%
1.81%
61.47%
13.00%
17.23%
7.98%
37.61%
16.69%
18.77%
8.56%
33.40%
7.31%
11.14%
4.84%
$1.60
0.18
2.01
$0.00
0.00
0.00
$0.00
0.05
0.73
$0.00
0.06
0.62
$1.60
0.00
0.02
$0.00
0.09
1.19
$0.00
0.00
0.00
$0.00
0.18
2.01
$0.00
0.02
0.44
$97,590,900.00
10,988,300.00
2,771,900.00
3,662,400.00
1,693,300.00
$1,296,600.00
433,000.00
94,800.00
144,500.00
62,700.00
$2,723,690.00
795,210.00
180,330.00
234,450.00
107,010.00
$2,385,500.00
916,000.00
272,400.00
361,000.00
167,100.00
$11,627,500.00
4,141,900.00
1,192,300.00
1,051,700.00
455,100.00
$5,158,600.00
916,000.00
160,400.00
198,900.00
93,600.00
$2,094,600.00
1,287,500.00
272,400.00
361,000.00
167,100.00
$2,385,500.00
897,100.00
398,100.00
447,800.00
204,300.00
$1,296,600.00
433,000.00
94,800.00
144,500.00
62,700.00
2.20x
6.59x
30.10x
19.75x
44.66x
0.36x
2.95x
12.27x
9.65x
20.49x
1.62x
4.68x
21.23x
15.26x
32.91x
1.89x
3.21x
14.52x
10.95x
24.99x
1.44x
4.03x
14.00x
15.87x
37.02x
0.52x
2.95x
16.86x
13.59x
26.65x
1.89x
3.07x
14.52x
10.95x
24.99x
2.05x
5.45x
12.27x
10.91x
20.49x
2.20x
6.59x
30.10x
19.75x
44.66x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
99.88
0.00%
102.77
0.00%
133.92
20.00%
85.21
60.00%
79.58
20.00%
$93.83
88.61
5.89%
UOIG 13
University of Oregon Investment Group
June 1, 2012
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
($ in thousands)
Total Revenue
2008A
% YoY Growth
Cost of Goods Sold
2009A
2010A
2011A
$ 7,953,912.00 $ 8,031,620.00 $ 9,005,794.00 $
2012E
10,107,787.00 $
2013E
11,573,416.12 $
2014E
12,985,372.89 $
2015E
14,653,993.30 $
2016E
16,580,993.42 $
2017E
18,678,489.09 $
2018E
20,854,533.07 $
2019E
23,075,540.84 $
25,302,330.53 $
2020E
2021E
27,566,889.11 $
29,772,240.24
20.66%
0.98%
12.13%
12.24%
14.50%
12.20%
12.85%
13.15%
12.65%
11.65%
10.65%
9.65%
8.95%
8.00%
5,246,468.00
5,276,493.00
5,869,519.00
6,571,238.00
7,523,877.82
8,459,970.44
9,566,126.83
10,824,072.51
12,193,317.68
13,613,839.19
15,068,328.17
16,547,724.17
18,070,095.81
19,679,450.80
% Revenue
65.96%
65.70%
65.17%
65.01%
65.01%
65.15%
65.28%
65.28%
65.28%
65.28%
65.30%
65.40%
65.55%
66.10%
Gross Profit
$2,707,444.00
$2,755,127.00
$3,136,275.00
$3,536,549.00
$4,049,538.30
$4,525,402.45
$5,087,866.47
$5,756,920.92
$6,485,171.41
$7,240,693.88
$8,007,212.67
$8,754,606.36
$9,496,793.30
$10,092,789.44
Gross Margin
Direct Store Expenses
% Revenue
General and administrative expenses
% Revenue
Pre-Opening Expense
34.04%
34.30%
34.83%
34.99%
34.99%
34.85%
34.72%
34.72%
34.72%
34.72%
34.70%
34.60%
34.45%
33.90%
1,859,466.00
1,879,931.00
2,101,001.00
2,341,702.00
2,667,672.42
2,999,621.14
3,392,399.45
3,846,790.47
4,342,748.71
4,859,106.21
5,388,138.79
5,920,745.34
6,464,435.50
6,996,476.46
23.38%
23.41%
23.33%
23.17%
23.05%
23.10%
23.15%
23.20%
23.25%
23.30%
23.35%
23.40%
23.45%
23.50%
270,428.00
243,749.00
272,449.00
310,920.00
358,775.90
412,934.86
470,393.19
532,249.89
599,579.50
669,430.51
749,955.08
829,916.44
912,464.03
997,370.05
3.40%
3.03%
3.03%
3.08%
3.10%
3.18%
3.21%
3.21%
3.21%
3.21%
3.25%
3.28%
3.31%
3.35%
55,554.00
49,218.00
38,044.00
40,852.00
42,092.00
52,850.00
64,235.00
79,850.00
82,500.00
75,986.00
69,675.00
57,350.00
51,750.00
45,895.00
New Stores
-1
9
15
12
25
29
31
35
33
30
27
22
18
15
% Revenue
.70%
.61%
.42%
.40%
0.36%
0.41%
0.44%
0.48%
0.44%
0.36%
0.30%
0.23%
0.19%
0.15%
249,213.00
266,695.00
275,589.00
287,109.00
550,722.17
603,965.03
661,753.60
721,209.60
781,883.31
841,973.03
844,983.54
730,105.37
517,045.71
515,673.40
3.13%
3.32%
3.06%
2.84%
4.76%
4.65%
4.52%
.
4.19%
4.04%
3.66%
2.89%
1.88%
1.73%
36,545.00
31,185.00
11,217.00
8,346.00
11,573.42
12,985.37
14,653.99
16,580.99
18,678.49
20,854.53
23,075.54
25,302.33
27,566.89
29,772.24
Depreciation and Amortization Expense
% Revenue
Relocation, store closure, and lease termination cost
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest Expense
% Revenue
Investment and other income
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
Net Margin
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Working Capital
Capital Expenditures
.46%
.39%
.12%
.08%
.10%
.10%
.10%
.10%
.10%
.10%
.10%
.10%
.10%
.10%
$236,238.00
$284,349.00
$437,975.00
$547,620.00
$418,702.40
$443,046.05
$484,431.25
$560,239.96
$659,781.40
$773,343.60
$931,384.72
$1,191,186.88
$1,523,531.17
$1,507,602.30
2.97%
3.54%
4.86%
5.42%
3.62%
3.41%
3.31%
3.38%
3.53%
3.71%
4.04%
4.71%
5.53%
5.06%
36,416.00
36,856.00
33,048.00
3,882.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
.46%
.46%
.37%
.04%
($6,697.00)
($3,449.00)
($6,854.00)
($7,974.00)
($9,286.00)
($9,293.43)
($9,287.54)
($9,282.34)
($9,277.73)
($9,273.60)
($9,269.88)
($9,266.48)
($9,263.37)
($9,260.49)
(.08%)
(.04%)
(.08%)
(.08%)
(.08%)
.08%
(.06%)
(.06%)
(.05%)
(.04%)
(.04%)
(.04%)
(.03%)
(.03%)
206,519.00
250,942.00
411,781.00
551,712.00
427988.40
452,339.48
493,718.79
569,522.30
669,059.12
782,617.21
940,654.60
1,200,453.36
1,532,794.54
1,516,862.78
2.60%
3.12%
4.57%
5.46%
3.70%
3.48%
3.37%
3.43%
3.58%
3.75%
4.08%
4.74%
5.56%
5.09%
91,995.00
104,138.00
165,948.00
209,100.00
186,428.17
167,365.61
182,675.95
210,723.25
247,551.88
289,568.37
348,042.20
444,167.74
567,133.98
561,239.23
44.55%
41.50%
40.30%
37.90%
43.56%
37.00%
37.00%
37.00%
37.00%
37.00%
37.00%
37.00%
37.00%
37.00%
$114,524.00
$146,804.00
$245,833.00
$342,612.00
$241,560.23
$284,973.87
$311,042.83
$358,799.05
$421,507.25
$493,048.84
$592,612.40
$756,285.62
$965,660.56
$955,623.55
1.44%
1.83%
2.73%
3.39%
2.09%
2.19%
2.12%
2.16%
2.26%
2.36%
2.57%
2.99%
3.50%
3.21%
249,213.00
266,695.00
275,589.00
287,109.00
550,722.17
603,965.03
661,753.60
721,209.60
781,883.31
841,973.03
844,983.54
730,105.37
517,045.71
515,673.40
20,194.30
21,561.19
19,729.64
2,410.71
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
383931.2968
435060.1903
541151.6354
632131.7139
792282.4031
888938.9033
972796.4349
1080008.649
1203390.563
1335021.869
1437595.942
1486390.988
1482706.274
0.00
$1,471,296.95
4.83%
5.42%
6.01%
6.25%
6.85%
6.85%
6.64%
6.51%
6.44%
6.40%
6.23%
5.87%
5.38%
4.94%
622,606.00
1,055,380.00
1,161,519.00
1,453,144.00
1,444,385.63
1,605,603.99
1,800,641.42
2,026,491.87
2,271,943.56
2,539,019.21
2,832,595.49
3,136,827.15
3,413,185.61
3,413,185.60
7.83%
13.14%
12.90%
14.38%
12.48%
12.36%
12.29%
12.22%
12.16%
12.17%
12.28%
12.40%
12.38%
11.46%
665,797.00
683,635.00
747,462.00
878,895.00
1,170,278.47
1,315,649.52
1,491,656.07
1,688,307.56
1,919,022.85
2,163,900.63
2,411,615.29
2,651,877.81
2,899,583.58
2,899,583.49
8.37%
8.51%
8.30%
8.70%
10.11%
10.13%
10.18%
10.18%
10.27%
10.38%
10.45%
10.48%
10.52%
9.74%
($43,191.00)
$371,745.00
$414,057.00
$574,249.00
$274,107.16
$289,954.47
$308,985.34
$338,184.31
$352,920.71
$375,118.58
$420,980.20
$484,949.34
$513,602.03
$513,602.11
1.73%
-0.54%
4.63%
4.60%
5.68%
2.37%
2.23%
2.11%
2.04%
1.89%
1.80%
1.82%
1.92%
1.86%
48,558.00
414,936.00
42,312.00
160,192.00
(13,027.41)
15,847.31
19,030.87
29,198.97
14,736.40
22,197.87
45,861.62
63,969.14
28,652.68
0.09
522,000.00
314,615.00
256,793.00
364,964.00
435,000.00
465,875.00
505,650.00
520,240.00
530,895.00
525,785.00
525,645.00
520,550.00
517,985.00
515,986.00
New Stores
-1
9
15
12
25
29
31
35
33
30
27
22
18
15
% Revenue
6.56%
3.92%
2.85%
3.61%
3.76%
3.59%
3.45%
3.14%
2.84%
2.52%
2.28%
2.06%
1.88%
1.73%
0.00
0.00
14.47
1.97
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00%
0.00%
.00%
.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$955,310.87
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
EBITDA
EBITDA Margin
-186626.70
-294490.81
242032.17
106973.74
370309.81
407216.59
448115.56
530569.68
657759.16
787039.00
866089.32
901871.84
936068.59
-186626.7032
-294490.8097
242032.1654
106973.7419
370309.8122
364569.2264
367204.6745
397946.0878
451556.7612
494544.4502
498121.6256
474767.7103
451032.3084
421316.3677
485451.0
551044.0
713564.0
834729.0
969424.6
1047011.1
1146184.8
1281449.6
1441664.7
1615316.6
1776368.3
1921292.2
2040576.9
2023275.7
6.10%
6.86%
7.92%
8.26%
8.38%
8.06%
7.82%
7.73%
7.72%
7.75%
7.70%
7.59%
7.40%
6.80%
UOIG 14
University of Oregon Investment Group
June 1, 2012
Appendix 3 – Revenue Model
Revenue Model
($ in thousands)
Total Stores
% Growth
Avg. Square Feet/ Store
% Growth
Total Square Footage
% Growth
Revenue/Square Foot
% Growth
Total Revenue
% Growth
2008A
2009A
2010A
2011A
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
275
284
299
311
336
365
396
431
464
494
521
543
561
576
(.36%)
3.27%
5.28%
4.01%
8.04%
8.63%
8.49%
8.84%
7.66%
6.47%
5.47%
4.22%
3.31%
2.67%
35,981.82
37,204.23
37,561.87
38,045.02
37,767.32
37,374.13
37,152.57
36,963.35
37,014.61
37,062.07
37,269.26
37,681.42
38,259.82
38,931.02
6.65%
3.40%
.96%
1.29%
1.50%
.85%
1.65%
1.50%
1.45%
1.10%
.85%
.25%
(.15%)
(.50%)
9,895,000
10,566,000
11,231,000
11,832,000
12,689,820
13,641,557
14,712,419
15,931,205
17,174,779
18,308,665
19,417,284
20,461,013
21,463,762
22,424,265
6.26%
6.78%
6.29%
5.35%
7.25%
7.50%
7.85%
8.28%
7.81%
6.60%
6.06%
5.38%
4.90%
4.48%
$803,831.43
$760,138.18
$801,869.29
$854,275.44
$912,023.66
$951,898.19
$996,028.84
$1,040,787.18
$1,087,553.39
$1,139,052.64
$1,188,402.08
$1,236,611.83
$1,284,345.66
$1,327,679.65
13.55%
(5.44%)
5.49%
6.54%
6.76%
4.37%
4.64%
4.49%
4.49%
4.74%
4.33%
4.06%
3.86%
3.37%
$7,953,912.00 $8,031,620.00 $9,005,794.00 $10,107,787.00 $11,573,416.12 $12,985,372.89 $14,653,993.30 $16,580,993.42 $18,678,489.09 $20,854,533.07 $23,075,540.84 $25,302,330.53 $27,566,889.11 $29,772,240.24
20.66%
.98%
12.13%
12.24%
14.50%
12.20%
12.85%
13.15%
12.65%
11.65%
UOIG 15
10.65%
9.65%
8.95%
8.00%
University of Oregon Investment Group
June 1, 2012
Appendix 4 – Working Capital Model
Working Capital Model
($ in thousands)
Total Revenue
Current Assets
Cash & Cash Equivalents
% of Revenue
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Short-term investments
% of Revenue
Prepaid Expenses
Days Sales Outstanding A/R
% of Revenue
Deferred income taxes
% of Revenue
Merchandise inventories
% of Revenue
Restricted Cash
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Payroll
Days Charges Outstanding
% of Revenue
dividends payable
% of Revenue
Other Liabilities
% of Revenue
Total Current Liabilities
% of Revenue
2008A
2009A
2010A
2011A
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
$7,953,912.00
$8,031,620.00
$9,005,794.00
$10,107,787.00
$11,573,416.12
$12,985,372.89
$14,653,993.30
$16,580,993.42
$18,678,489.09
$20,854,533.07
$23,075,540.84
$25,302,330.53
$27,566,889.11
$29,772,240.24
30,534.00
0.38%
115,424.00
5.31
1.45%
0.00%
68,150.00
3.14
0.86%
80,429.00
1.01%
327,452.00
4.12%
617.00
0.01%
622,606.00
7.83%
430,130.00
5.36%
104,731.00
4.76
1.30%
0.00%
51,137.00
2.32
0.64%
87,757.00
1.09%
310,602.00
3.87%
71,023.00
0.88%
1,055,380.00
13.14%
131,996.00
1.47%
133,346.00
5.40
1.48%
329,738.00
3.66%
54,686.00
2.22
0.61%
101,464.00
1.13%
323,487.00
3.59%
86,802.00
0.96%
1,161,519.00
12.90%
212,004.00
2.10%
175,310.00
6.33
1.73%
442,320.00
4.38%
73,579.00
2.66
0.73%
121,176.00
1.20%
336,799.00
3.33%
91,956.00
0.91%
1,453,144.00
14.38%
315,850.00
2.73%
172,808.54
5.45
1.49%
345,750.00
2.99%
82,757.85
2.61
0.72%
122,458.16
1.06%
346,893.99
3.00%
57,867.08
0.50%
1,444,385.63
12.48%
325,750.00
2.51%
197,448.82
5.55
1.52%
405,150.00
3.12%
92,854.31
2.61
0.72%
123,623.99
0.95%
395,850.00
3.05%
64,926.86
0.50%
1,605,603.99
12.36%
350,850.00
2.39%
226,835.79
5.65
1.55%
465,950.00
3.18%
104,786.09
2.61
0.72%
124,675.78
0.85%
454,273.79
3.10%
73,269.97
0.50%
1,800,641.42
12.29%
380,950.00
2.30%
260,493.75
5.75
1.57%
535,980.00
3.23%
118,241.51
2.61
0.71%
125,620.35
0.76%
522,301.29
3.15%
82,904.97
0.50%
2,026,491.87
12.22%
415,905.00
2.23%
299,367.56
5.85
1.60%
605,500.00
3.24%
133,563.99
2.61
0.72%
126,470.92
0.68%
597,743.65
3.20%
93,392.45
0.50%
2,271,943.56
12.16%
445,650.00
2.14%
339,957.46
5.95
1.63%
695,000.00
3.33%
149,124.20
2.61
0.72%
127,242.57
0.61%
677,772.32
3.25%
104,272.67
0.50%
2,539,019.21
12.17%
475,850.00
2.06%
385,646.03
6.10
1.67%
805,890.00
3.49%
165,005.92
2.61
0.72%
127,948.10
0.55%
761,492.85
3.30%
110,762.60
0.48%
2,832,595.49
12.28%
515,950.00
2.04%
432,075.32
6.25
1.71%
915,750.00
3.62%
180,434.65
2.61
0.71%
128,598.39
0.51%
847,628.07
3.35%
116,390.72
0.46%
3,136,827.15
12.40%
555,435.00
2.01%
479,588.34
6.35
1.74%
998,608.00
3.62%
197,122.14
2.61
0.72%
129,201.11
0.47%
934,693.39
3.39%
118,537.62
0.43%
3,413,185.61
12.38%
555,435.00
1.87%
479,588.34
5.88
1.61%
998,608.00
3.35%
197,122.14
2.42
0.66%
129,201.11
0.43%
934,693.39
3.14%
118,537.62
0.40%
3,413,185.60
11.46%
1,666,559.00
522,000.00
(249,213.00)
1,900,117.00
2,522,723.00
31.72%
1,900,117.00
314,615.00
(266,695.00)
1,897,853.00
2,953,233.00
36.77%
1,897,853.00
256,793.00
(275,589.00)
1,886,130.00
3,047,649.00
33.84%
1,886,130.00
364,964.00
(287,109.00)
1,997,212.00
3,450,356.00
34.14%
2,028,211.63
435,000.00
(550,722.17)
1,912,489.46
3,356,875.09
29.01%
1,912,489.46
465,875.00
(603,965.03)
1,774,399.43
3,380,003.42
26.03%
1,774,399.43
505,650.00
(661,753.60)
1,618,295.83
3,418,937.25
23.33%
1,618,295.83
520,240.00
(721,209.60)
1,417,326.23
3,443,818.10
20.77%
1,417,326.23
530,895.00
(781,883.31)
1,166,337.91
3,438,281.48
18.41%
1,166,337.91
525,785.00
(841,973.03)
850,149.89
3,389,169.10
16.25%
850,149.89
525,645.00
(844,983.54)
530,811.34
3,363,406.83
14.58%
530,811.34
520,550.00
(730,105.37)
321,255.97
3,458,083.12
13.67%
321,255.97
517,985.00
(517,045.71)
322,195.26
3,735,380.86
13.55%
322,195.26
515,986.00
(515,673.40)
322,507.86
3,735,693.46
12.55%
183,134.00
12.78
2.30%
196,233.00
9.03
2.47%
0.00%
286,430.00
3.60%
665,797.00
8.37%
189,597.00
13.12
2.36%
207,983.00
9.45
2.59%
8,217.00
0.10%
277,838.00
3.46%
683,635.00
8.51%
213,212.00
13.26
2.37%
244,427.00
9.91
2.71%
0.00%
289,823.00
3.22%
747,462.00
8.30%
236,913.00
13.16
2.34%
281,587.00
10.17
2.79%
17,827.00
0.18%
342,568.00
3.39%
878,895.00
8.70%
415,374.66
13.10
3.59%
301,225.90
9.5
2.60%
57,867.08
0.50%
395,810.83
3.42%
1,170,278.47
10.11%
466,050.37
13.10
3.59%
337,975.46
9.5
2.60%
67,523.94
0.52%
444,099.75
3.42%
1,315,649.52
10.13%
525,937.84
13.10
3.59%
385,420.10
9.6
2.63%
79,131.56
0.54%
501,166.57
3.42%
1,491,656.07
10.18%
593,472.72
13.10
3.58%
434,911.30
9.6
2.62%
92,853.56
0.56%
567,069.98
3.42%
1,688,307.56
10.18%
680,613.44
13.30
3.64%
491,269.85
9.6
2.63%
108,335.24
0.58%
638,804.33
3.42%
1,919,022.85
10.27%
771,332.05
13.50
3.70%
554,216.36
9.7
2.66%
125,127.20
0.60%
713,225.03
3.42%
2,163,900.63
10.38%
866,123.04
13.70
3.75%
613,240.40
9.7
2.66%
143,068.35
0.62%
789,183.50
3.42%
2,411,615.29
10.45%
947,109.09
13.70
3.74%
677,494.10
9.8
2.68%
161,934.92
0.64%
865,339.70
3.42%
2,651,877.81
10.48%
1,034,702.41
13.70
3.75%
740,152.09
9.8
2.68%
181,941.47
0.66%
942,787.61
3.42%
2,899,583.58
10.52%
1,034,702.41
12.69
3.48%
740,152.00
9.07
2.49%
181,941.47
0.61%
942,787.61
3.46%
2,899,583.49
9.74%
UOIG 16
University of Oregon Investment Group
June 1, 2012
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
37.00% Terminal Growth Rate
Risk Free Rate
Beta
15,734,074
1.10 PV of Terminal Value
Market Risk Premium
% Equity
3.00%
1.56% Terminal Value
6,939,126
7.00% Sum of PV Free Cash Flows
5,020,940
99.89% Firm Value
11,960,066
% Debt
0.11% Total Debt
19,228
Cost of Debt
6.00% Cash & Cash Equivalents
CAPM
9.26% Market Capitalization
WACC
9.25% Fully Diluted Shares
175,375
11,940,838
190,149
Implied Price
$
62.80
Current Price
$
88.61
Overvalued
-44.79%
Considerations
Avg. Industry Debt / Equity
8.32%
Avg. Industry Tax Rate
37.88%
Current Reinvestment Rate
(56.70%)
54%
Reinvestment Rate in Perpetuity
Implied Return on Capital in Perpetuity
5.59%
Terminal Value as a % of Total
58.0%
Implied 2013E EBITDA Multiple
11.4x
Implied Terminal Year Multiple
7.8x
Terminal Free Cash Flow Growth Rate
2%
UOIG 17
University of Oregon Investment Group
June 1, 2012
Appendix 6 – Exit Multiple
Exit Multiple
EBITDA 2016
1,441,665
Exit Multiple
15.26x
Terminal Value
21,997,612
PV of Terminal Value
15,101,531
Sum of PV Free Cash Flows
2,783,431
Firm Value
17,884,962
Total Debt
19,228
Equity Value
Implied Price
17,865,734
$
93.96
UOIG 18
University of Oregon Investment Group
June 1, 2012
Appendix 6 – Sources
WFM 10-K and 10-Q
WFM investor relation
WFM management presentations
IBIS World
Yahoo! Finance
Earnings call transcripts
Reuters
CNN Money
Past WFM report
FactSet
UOIG 19