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Will Whole Foods Market, Inc. (WFM) Take Another Post-Earnings Plunge?

Whole Foods Market, Inc. has a history of post-earnings bearish gaps

by 7/30/2014 9:27 AM
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It's been a dismal year for Whole Foods Market, Inc. (NASDAQ:WFM), with the shares off nearly 35% -- making it the second-worst performer on the S&P 500 Index (SPX) in 2014 -- thanks to a pair of earnings-induced bearish gaps. With the company headed to the earnings confessional after tonight's close, put players rushed the stock's options pits yesterday, scooping up contracts at two times the expected daily pace. Against this accelerated demand, WFM's 30-day at-the-money implied volatility tagged a fresh 52-week peak in intraday trading, before settling 1.4% lower at 45.7%.

The most sought-after WFM option was the weekly 8/1 34.50-strike put, which was bought to open for a volume-weighted average price (VWAP) of $0.49. As such, breakeven for the put buyers at this Friday's close -- when the weekly series expires -- is $34.01 (strike less the VWAP), or in territory not charted by WFM since December 2011.

However, as noted, WFM has had a terrible time on the charts of late, and tagged a two-year low of $36.08 as recently as July 18. Plus, analysts have started to take note of this poor price action, and with an average 12-month price target of $44.73 -- which stands at a 19% premium to WFM's present price of $37.68 -- more price-target cuts could be on the horizon, should the stock continue its historical trend of post-earnings plunges.

In fact, over the past four quarters, WFM has averaged a single-session post-earnings loss of 9.5%, which includes an 18.8% dive in early May. For Whole Foods Market, Inc.'s (NASDAQ:WFM) fiscal third quarter, Wall Street is calling for a per-share profit of 39 cents -- a penny more than what the company earned one year ago.


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