Whole Foods Market, Inc. (NASDAQ: WFM) responded to marijuana speculation back in 2015 stating they would carry the product so long as it was legal and in demand. Amazon.com, Inc. (NASDAQ: AMZN) has done a lot to its delivery and fulfillment centers since then, adding to it drone/sUAV delivery. Amazon released it's intent to acquire the company on Friday, June 16th. Whole Foods Market stock quickly responded to the buyout price and jumped to the $42s from the mid $35s PPS. With these companies combined, Amazon could be the next marijuana stock.
Marijuana is not federally legal and it is not considered to have medicinal value despite some state government findings. Without a legislative agreement amongst the union, federal banking systems cannot hold marijuana proceeds, it cannot be shipped via USPS or protected via armed transport without violating a list of federal codes. This is why major companies are waiting for further development and petitioning their U.S. representatives to make medicinal marijuana legal.
Basic stock investing methods point out that Whole Foods Market, Inc. had a price to earnings (P/E) ratio of 33.94 and a dividend with yield of 1.69%. This might not have been the best dividend stock, however it was tracking more fundamental value than others. In stark contrast is the acquiring company, Amazon.com, Inc. which is a momentum and speculative stock with outlandish valuation. The stock recently exceeded $1,000 PPS and is over 180 P/E.
Whole Foods Q2 '17 earnings were $0.31 per share. This was in-line with the market analyst consensus and the Q/Q revenue beat expectations by $10m.
At the end of Q2 2017, Whole Foods Market, Inc. had $624m in cash from operating activities. Their capital expense was $376m leaving them a free cash flow of $248m. Amazon's cash flow on the other hand was negative / ($1,590m) and their capital expense was $1,861m. Amazon is able to handle the loss due in part to the massive balance of cash reserves.
Whole Foods' FCF Yield is approximately 1.82% (Market Capital), which is near the low end of yield value. The yield in relation to Enterprise Value is 2.49%. It's speculated that Amazon sees synergy in their refrigerated warehouses and distribution chain.
Free Cash Flow is obtained by taking the value of the company's operating cash flow and subtracting from it the value of capital expenses. The yield is then formulated by dividing the result by either the market capital or enterprise value.
Disclosure: I am/we are long NEPT; I/we have no positions in $WFM or $AMZN, and no plans to initiate any positions within the next 72 hours.