Whole Foods' New Changes Aren't Perfect But 'Should Be Good For The Stock,' Credit Suisse Says

Whole Foods Market, Inc. (NASDAQ: WFM)'s mostly in-line earnings report on Wednesday was accompanied with a notable change in the company's board composition.

Facing pressure from activist investor and major Whole Foods shareholder Jana Partners, Whole Foods replaced five directors, named a new chairperson and also a new chief financial officer. But some analysts on the Street aren't fully impressed with the move.

Credit Suisse's Take

Credit Suisse's Edward Kelly acknowledged in a research report that Whole Foods' new personnel changes, along with a pledge to accelerate its turnaround and the introduction of 2020 guidance do represent a "step in the right direction." However, the analyst highlighted a lack of food retail experience among the new board members and management's "seeming unwillingness" to find the right personal that would be needed to help explore strategic alternatives, which may even include a sale of the company.

Kelly further argued Whole Foods' changes is not part of a settlement with the activist investor and sends a signal that management "has no plans of rolling over" to activist pressures. On the other hand, the changes do represent management's efforts to demonstrate a sense of urgency.

Nevertheless, Whole Foods' new changes "should be good for the stock" and could be the first step in generating meaningful upside if the company achieves its 2020 objective of delivering a 30 percent-plus increase in EBITDA. Investors could also find some relief in the fact that Jana maintained its optionality to force the company to implement more aggressive changes in the future.

At time of publication, shares were up 3.67 percent at $27.58.

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