Amazon.com, Inc. (NASDAQ:AMZN) announced on June 16 a surprise acquisition of Whole Foods Market, Inc.(NASDAQ:WFM) for $13.7 billion (all-cash, $42/share). Amazon shares spiked on the news of its largest acquisition to $995 from $964. Whole Foods stores- which have been flailing recently- will continue operating “under the Whole Foods Market brand” with the same CEO John Mackey.
Mackey previously called activist hedge fund Jana Partners- which has a 9% stake in Whole Foods and is set to make about $300 million from the acquisition- “greedy bastards” and said the fund was pushing for a sale rather than giving the company the time it needed to improve.
What Are These Four Top Analysts Saying About the News?
Oppenheimer’s Jason Helfstein says: “Our analysis assumes no incremental investment by Amazon, or potential revenue/ cost synergy; however, we believe it’s likely Amazon will invest at some level to: 1) increase store efficiency (especially on labor cost); and 2) convert stores to work as online food distribution hubs.”
Overall, he is constructive on the acquisition but says “it reinforces our view that Street margin expansion in 2018 is too aggressive.” Like most of the Street he has a buy rating on AMZN stock.
Jefferies’ Brian Fitzgerald provides some more in-depth analysis of the strategy behind the deal: We believe the WFM (Hold) acquisition would give a boost to AMZN’s efforts with Fresh which was launched 10 years ago and operates in 20 metro areas in the US and abroad. We think Fresh growth could accelerate meaningfully with WFM in the picture and this shows AMZN’s serious interest in the $600B grocery market.
Fitzgerald, who has a buy rating on the stock with a 12-month price target of $1,150 (16% upside from the current share price), suggests that Amazon could even offer a special 1-hour grocery delivery service.
Cantor Fitzgerald’s Naved Khan is very bullish on the acquisition, which he calls a “a potentially transformative transaction for Amazon and for the industry overall”. He says “it firmly establishes Omnichannel commerce as a the new standard in retail.” Over time, Khan expects Amazon gain a number of benefits from the deal including synergies, competitive response to Walmart, valuable data on local buying behavior, expanded reach and increase in customer wallet share. Compared to Fitzgerald Khan has a slightly more muted AMZN price target of $1050 (6% upside).
Key Banc’s Brent Bracelin concludes “Whole Foods gives Amazon a fleet of attractively located stores, very strong brand, and credibility within food retail. We also add that the overlap between Whole Foods’s affluent customer base and Amazon’s is likely very high.” Bracelin has a hold rating on Amazon with no price target.
Out of the 32 analysts polled by TipRanks (in the past 3 months), 29 rate Amazon stock a Buy, while 3 rate the stock a Hold. With a return potential of nearly 12%, the stock’s consensus target price stands at $,112.65.