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Premium Commanded by Whole Foods Ridiculous, or Surprisingly Modest?

After the bell on Wednesday, the Fast Money pros were trying to figure out just how much more upside could possibly be left in Whole Foods.

The stock traded around a 5-year high right before the company reported results.

On the plus side, earnings beat expectations.

Whole Foods said on Wednesday that net income increased 33 percent to $118.3 million, or 65 cents per share, for its fiscal first quarter, ended Jan. 15. That was 5 cents higher than analysts' average forecast, according to Thomson Reuters I/B/E/S.

The company also raised its 2012 forecast to a range of $2.28 to $2.32 per share, from $2.21 to $2.26 per share.

But on the down side, the stock is rich; it trades at a big premium and trader Tim Seymour has a tough time getting his arms around the valuations.

“At 35 times earnings it’s priced for perfection," he says. "The historic valuation is 28. Do they deserve the multiple?”

BMO analyst Karen Short says, they do. She points to a slew of factors including:
- Self-funded unit growth
- Improving ROIC
- Strong balance sheet
- Basically no competition on the horizon

“Whole Foods is in a league of its own,” she says candidly. In fact she would not say the valuations are even stretched.

“I don’t know that they’re that unreasonably valued,” she adds. “They’ve never been in this situation where they’re generating the cash on the order of this magnitude, and they have a dividend yield, and accelerating unit growth. With all of those elements it deserves the premium.”






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Trader disclosure: On Feb. 8, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Seymour is long AAPL; Seymour is long BAC; Seymour is long CSCO; Finerman is long AAPL; Finerman is long BAC; Finerman is long JPM; Finerman is long IBM; Finerman is long HPQ; Finerman is long NTAP; Finerman is long CMI and short calls; Najarian is long AAPL; Najarian is long BAC calls; Najarian is long C; Najarian is long JPM calls; Najarian is long MS; Najarian is long CSCO and long calls; Najarian is long YHOO; Najarian is long HPQ; Najarian is long WFM calls; Najarian is long V calls; Murphy is short WHR;

For Ron Insana
No disclosures

For Karen Short
(WFM) BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months. This issuer is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO CM Ltd. or an affiliate within the past 12 months: Non-Securities Related Services.
BMO Capital Markets makes a market in this security (WFM).

For Aaron Kessler
No disclosures

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