Amazon.com, Inc. (NASDAQ:AMZN) appears intent upon growing its annual profits (with some quarterly volatility), which Wedbush expects to continue as the company invests in growth. Whole Foods operates natural and organic foods supermarkets, branding itself as America’s Healthiest Grocery Store. Amazon will pay $42 per share, a 27% premium to Thursday’s closing price, in an all-cash transaction valued at $13.7 billion including net debt. Whole Foods will continue to operate as a separate brand, with the CEO staying on and no impact to product sourcing. The transaction is expected to close in 2H:17. The firm is assuming it closes at the end of Q3:17 for modeling purposes.
As of April 9, Whole Foods Market had 440 stores in the U.S. across 42 states and the District of Columbia, with another 12 in Canada and 9 in the U.K. The domestic store base is weighted towards the more populous states, including California (85 stores), Texas (29), Florida (26), and New York (17) as of September 25. Its stores in Canada are concentrated around Toronto, Ottawa, and Vancouver, with 7 of 9 U.K. stores in London. With the acquisition, the number of Amazon’s refrigerated U.S. locations grows by 440 Whole Foods Market stores from an estimated 20 fulfillment centers. As a result, Amazon is positioned to quickly expand its Amazon Fresh offering, through which Amazon Prime subscribers pay an additional $14.99 per month for grocery delivery. Amazon may eventually offer expedited grocery delivery, potentially in an hour or less, to the vast majority of the U.S. population once it has built up its delivery network. Amazon Fresh customers may no longer have to make delivery reservations days or weeks in advance. Wedbush sees Whole Foods stores as ideal outlets for popular Amazon products such as Echo, Fire TV, and Kindle given the favorable demographics of the customer base.
of online ordering and delivery of groceries over the next several years. The firm expects the WFM acquisition to add significantly to revenue, but only slightly to EPS as a result. Wedbush is adjusting its estimates to reflect the acquisition. The firm expects incremental top-line growth to be largely absorbed by increased spending as Amazon augments its grocery delivery capabilities. Reiterating Wedbush's OUTPERFORM rating and $1,250 price target.