SunTrust's David Magee Still 'Comfortable' With Whole Foods Investment

In a report published Thursday, SunTrust Robinson Humphrey analyst David Magee noted that recent checks in Boise, Idaho showed that organic grocer Whole Foods Market, Inc. (NASDAQ: WFM)'s pricing is for the most part on par with competitors, but its organic produce pricing is "curiously high."

"In broad terms, our checks continue to suggest Whole Foods has made headway reducing prices on non-produce grocery items while produce, particularly organic, remains a notable forward opportunity," Magee wrote. "We find it interesting that Whole Foods bigger differential is on organic produce since it is a 'core competency' department, in our opinion. We wonder if there are quality differences that aren't being communicated effectively."

Magee continued that he was "somewhat surprised" to see "such bifurcated results" within the organic sub-category. Specifically, the company's price premium on certain items measured in the mid-to-high teens versus traditional and specialty grocers.

As an example, Magee paid $2.49 for an iceberg lettuce at Whole Foods while the same item cost only $1.50 at Natural Grocers by Vitamin Cottage Inc (NYSE: NGVC) and $1.89 at Kroger Co (NYSE: KR) owned Fred Meyer.

Magee said that his checks in Boise compares favorably to checks done in the second half of 2014. The analyst did note that his checks portray only a small subset of Whole Foods' total product offering, but nevertheless, it does "illustrate Whole Foods improved competitive profile."

Bottom line, Magee stated that Whole Foods is improving its pricing. Shares of Whole Foods recently hit three-year low and given the "notable" forward growth opportunities (including favorable sector wide trends and square company specific footage growth) and the analyst is "comfortable" with his bullish stance.

Shares remain Buy rated with an unchanged $55 price target.