The company beat earnings by $0.05 at $0.65 per share and revenues rose almost 13% to $3.39 billion versus Thomson Reuters estimates of $3.38 billion.  Whole Foods even raised guidance for its Fiscal year of 2012 to a range of $2.28 to $2.32 earnings per share from a prior target of $2.21 to $2.26 and against a consensus target from Thomson Reuters of $2.27 EPS.  It also raised revenue guidance for 2012 to a range of 13.5% to 15% and that looks mostly in-line with the expected figure of $11.6 billion expected.

Whole Foods is a great growth story, it is an incredibly well run organization, and it deserves a premium over traditional grocery stores which run on razor-thin margins.  Whole Foods has far higher margins and its expansion of its own 365 private-label brand is likely going to help it capture even higher margins even though the products are generally priced lower than other organic and natural brand-label foods. 

So, everything is positive… except for our headline.  The guidance is not exactly far higher than what was already expected.  At the mid-point of its new earnings range, Whole Foods stock trades at a massive 33.9-times the fiscal September 2012 consensus estimate and it trades at 1.2-times expected revenues.

Compare Whole Foods forward 2012 valuations of 33.9-times earnings and 1.2-times sales to The Kroger Company (NYSE: KR) and Safeway Inc. (NYSE: SWY).  Kroger trades at only 10.6-times earnings and only about 0.14-times sales; Safeway trades at 12-times expected earnings and only 0.17-times total sales.
 
The good news for the bulls is that Whole Foods has always been a premium stock.  It is even easy to argue that Whole Foods will always trade at a premium to grocery chains.  It has the whole lifestyle trade attached to it.  Whole Foods is far more of a fun experience compared to most grocery stores, at least until the bill comes.  Whole Foods is arguable the biggest luxury brand that there is. 

The bad news is simple.  Valuations at some point just have to give.  At $77.93 and after the stock hit a new high of $78.31, how can it rise?  The consensus target from analysts is $79.29 and even if that gets raised it can only rise so much.  With a $13.99 billion market cap, it is worth roughly two-thirds of the combined values of Safeway and Whole Foods while it is expected to generate only about 8% of the combined sales of the two food giants.

A great company, at a price that just feels too high to justify on any traditional financial metrics.  The stock can run up on news.  It just looks too hot now under rational evaluations.

JON C. OGG

About the only weapons the grocers have is selectively lowering prices and pushing their privately-labeled goods, which have a higher profit margin for the stores than the nationally-advertised brands. Stores have been unable, yet, to come up with a significant boost to their revenues and profits available from technology developments. The costs of implementing high-tech grocery shopping more than offsets any possible gains. It’s another problem grocers will have to find an answer to, along with rising costs, if they are going to grow.

We’ve looked today at a number of grocery store and supermarket stocks to try to determine where some hidden value may lie. The stores we’ve reviewed are Safeway Inc. (NYSE: SWY), The Kroger Co. (NYSE: KR), Winn-Dixie Stores Inc. (NASDAQ: WINN), Whole Foods Market, Inc. (NASDAQ: WFM), Supervalu Inc. (NYSE: SVU), The Fresh Market, Inc. (NASDAQ: TFM), Ruddick Corp. (NYSE: RDK), Weis Markets, Inc. (NYSE: WMK), and Wal-Mart Stores Inc. (NYSE: WMT). We’ve included Walmart because it gets more than half its $100+ billion in revenues from grocery sales, making it the largest grocery seller among this group.

All data from Yahoo! Finance, and current prices were gathered at about noon today.

Safeway Inc. (NYSE: SWY) has a median target price of $19.00 from 13 brokers. Shares are trading today at $19.28, about 1.5% above the target price. Safeway’s forward P/E is 10.37 and the company pays a dividend yield of 2.9%. The stock’s 52-week trading range is $15.93-$25.43, and at today’s price that’s about 21% above its 52-week low, posted earlier this morning, and 24% below the 52-week high. Safeway saw its average food basket price rise by 2.3% year-over-year in September, the same rate as Kroger and Supervalu. Sales of private label foods and gasoline gave the company a boost in the third quarter, but gross margins fell — never a good sign for a grocery. Look for a hike to the target price soon, now that Safeway has managed to bust through $19.

The Kroger Co. (NYSE: KR) has a median target price of $26.00 from 15 brokers. Shares are trading today at $22.83, for an implied gain of $3.17, or 14%. Kroger’s forward P/E is 10.57 and the company pays a dividend yield of 2%. The stock’s 52-week trading range is $20.53-$25.85, and at today’s price that’s about 11% above its 52-week low, posted earlier this morning, and 12% below the 52-week high. Kroger is Walmart’s leading competitor in grocery sales, with about $82 billion in 2010. The company has made a conscious effort to keep prices low, and that has affected margins negatively. If the company can figure a way to get those margins up, the stock price has room to grow.

Winn-Dixie Stores Inc. (NASDAQ: WINN) has a median target price of $10.50 from 5 brokers. Shares are trading today at $6.57, for an implied gain of $3.93, or 60%. Winn-Dixie’s forward P/E is negative and the company does not pay a dividend. The stock’s 52-week trading range is $5.10-$10.08, and at today’s price that’s about 29% above its 52-week low, posted earlier this morning, and 35% below the 52-week high. Winn-Dixie didn’t quite meet its expected EPS loss estimate of -$0.42 when it reported earnings yesterday, but its same-store sales rose 3.3% and its revenues grew 3.1%. The company has a lot of headroom before it hits its price target or its 52-week high, and its big plus is a debt-free balance sheet.

Whole Foods Market, Inc. (NASDAQ: WFM) has a median target price of $75.00 from 15 brokers. Shares are trading today at $70.64, for an implied gain of $4.36, or 6%. Whole Foods’ forward P/E is 31.04 and the company pays a dividend yield of 0.6%. The stock’s 52-week trading range is $39.95-$74.45, and at today’s price that’s about 77% above its 52-week low, posted earlier this morning, and 5% below the 52-week high. The company is expected to report EPS of $0.41 on revenues of $2.36 billion after markets close today. Full-year EPS for the year ended in September is expected to be $1.93. Whole Foods has performed very well in a tight environment this year, and the company’s stock price reflects that. Expectations, as indicated by the high forward earnings multiple, might be somewhat optimistic but there’s still a 6% gain available when the company hits its target price.

Supervalu Inc. (NYSE: SVU) has a median target price of $8.38 from 10 brokers. Shares are trading today at $7.77, for an implied gain of $0.61, or 8%. Supervalu’s forward P/E is 6.03 and the company pays a dividend yield of 4.2%. The stock’s 52-week trading range is $6.26-$11.77, and at today’s price that’s about 24% above its 52-week low, posted earlier this morning, and 34% below the 52-week high. Like Safeway and Kroger, the average food basket price rose 2.3% at Supervalu in September. The company reported EPS of $0.28 two weeks ago, beating estimates. At the same time, the company lowered its full-year estimates on both earnings and revenues.

The Fresh Market, Inc. (NASDAQ: TFM) has a median target price of $43.50 from 8 brokers. Shares are trading today at $40.27, for an implied gain of $3.23, or 8%. Fresh Market’s forward P/E is 30.48 and the company does not pay a dividend. The stock’s 52-week trading range is $30.86-$46.85, and at today’s price that’s about 30% above its 52-week low, posted earlier this morning, and 14% below the 52-week high. Fresh Market shares started the month of September with a bang, but unfortunately the company only succeeded in generating short interest near 20% of outstanding shares. Stock price increases have stalled, and remain about where they were two months ago.

Ruddick Corp. (NYSE: RDK) has a median target price of $49.00 from 3 brokers. Shares are trading today at $43.75, for an implied gain of $5.25, or 12%. Ruddick’s forward P/E is 15.46 and the company pays a dividend yield of 1.2%. The stock’s 52-week trading range is $33.44-$46.00, and at today’s price that’s about 31% above its 52-week low, posted earlier this morning, and 5% below the 52-week high. Ruddick sold its thread-making and textile business to a private equity buyer last week for $180 million, leaving it with just its grocery operations. Shares got a short-lived boost on the sale, but shares continue to drift away from the 52-week high and the target price.

Weis Markets, Inc. (NYSE: WMK) has a median target price of $31.00 from just one broker. Shares are trading today at $39.45, about 21% above the target price. Weis’s forward P/E is unreported and the company pays a dividend yield of 3%. The stock’s 52-week trading range is $36.52-$42.20, and at today’s price that’s about 8% above its 52-week low, posted earlier this morning, and 7% below the 52-week high. Just looking at Weis’s hi/low it is pretty clear that the company needed to do something to try to break its share price out of that tight range. Last week it boosted its annual dividend from $1.16 to $1.20, and declared a special dividend of $1/share. The bounce to the share price lasted just one day.

Wal-Mart Stores Inc. (NYSE: WMT) has a median target price of $60.00 from 19 brokers. Shares are trading today at $57.06, for an implied gain of $2.94, or 5%. Walmart’s forward P/E is 11.62 and the company pays a dividend yield of 2.6%. The stock’s 52-week trading range is $48.31-$57.96, and at today’s price that’s about 18% above its 52-week low, posted earlier this morning, and 2% below the 52-week high. Walmart stock is trading near enough to its 52-week high that another good quarterly report could push the shares through that barrier. Walmart’s average food basket price rose 0.9% year-over-year in September, less than half as much than prices at Safeway, Kroger, and Supervalu stores.

Paul Ausick

There were several analyst upgrades and downgrades today, including the addition of Aetna, Inc. (NYSE: AET) to Goldman Sachs’ Conviction Buy list. Goldman also raised Amerigroup Corp. (NYSE: AGP) to ‘buy’. JB Hunt Transport Services Inc. (NASDAQ: JBHT) cut to ‘hold’ at Stifel Nicolaus; Sandisk Corp. (NASDAQ: SNDK) cut to ‘neutral’ at Sterne Agee; Weyerhaeuser Corp. (NYSE: WY) raised to ‘hold’ at Deutsche Bank; Salesforce.com (NYSE: CRM) cut to ‘equal-weight’ at Global Equities Research; and Safeway Inc. (NYSE: SWY) started at ‘neutral’ by JP Morgan.Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Shaw Group (NYSE: SHAW) up nearly 5.5%, at $23.39; Loews Corp. (NYSE: L) is down about -3%, at $40.07; Identive Group Inc. (NASDAQ: INVE) is down more than -6.5%, at $2.37; and Humana, Inc. (NYSE: HUM) is up more than 6.5%, at $85.68.

Several other standouts from today are as follows…

Momenta Pharmaceuticals, Inc. (NASDAQ: MNTA) is up more than 22%, at $14.96. The shares jumped following a court ruling that will hamper the introduction of competing drugs.

NuPath Inc. (NASDAQ: PATH) is up more than 15%, at $2.68. The company reported positive results on tests of its patch treatment for migraine headaches.

NPS Pharmaceuticals, Inc. (NASDAQ: NPSP) is down more than 33%, at $5.18. The company said that two patients for its new bowel drug died and another developed cancer.

Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) is down more than -15%, at $4.06. This could well be caused by bit of profit-taking on solar stocks that posted sharp gains on Friday.

Trina Solar Ltd. (NYSE: TSL), another solar maker, is also down about -14%, at $8.04. Just another day in the solar whirlwind.

Gevo, Inc. (NASDAQ: GEVO) is down about -16%, at $7.31. The biofuel maker was refused a re-examination of a patent by the US Patent and Trademark Office.

Stay tuned for Tuesday. A two-day meeting of the Federal Reserve board of governors begins tomorrow. The first data on auto sales in October is expected tomorrow as well.  We have noted the following events (all times Eastern):

10:00 a.m. — ISM Manufacturing index released
10:00 a.m. — US construction spending for September 2011

24/7 Wall St. has compiled detailed earnings previews for the following companies: Novellus Systems Inc. (NASDAQ: NVLS); Alcoa Inc. (NYSE: AA); ADTRAN Inc. (NASDAQ: ADTN); Host Hotels and Resorts Inc. (NYSE: HST); Pepsico Inc. (NYSE: PEP); Google Inc. (NASDAQ: GOOG); J. B. Hunt Transport Services Inc. (NASDAQ: JBHT); J.P. Morgan Chase & Co. (NYSE: JPM); Safeway Inc. (NYSE: SWY); and Mattel Inc. (NASDAQ: MAT).

Some of these companies will not really seem on the surface to be sector-movers or market-moving companies, but these have been selected because they are the first ones of their peer groups to be reporting earnings. 

We have created a detailed earnings preview for each with consensus estimates from Thomson Reuters and added color in on each for investors to see what exactly is worth consideration this earnings season.  We have also added in recent price history and named where to look for additonal action (or fallout).

Monday, October 10

Novellus Systems Inc. (NASDAQ: NVLS) is the first chip equipment player to report for this earnings season.  it has been a few weeks since we have had earnings reports or guidance in the sector so we will be paying close attention since so many companies that are chip equipment customers have talked down their numbers in recent weeks.  Our belief is that expectations are very low for the quarter ahead. Estimates are $0.68 EPS and $311.9 million in revenue; next quarter estimates are $0.50 EPS and $278.5 million in revenue.  With shares hovering around $30.00 on Friday, the 52-week range is $25.26 to $41.82 and shares were above $36 in early July.  After Novellus reports, we would be watching the following: Applied Materials Inc. (NASDAQ: AMAT), KLA-Tencor Corporation (NASDAQ: KLAC), and Lam Research Corporation (NASDAQ: LRCX).

Tuesday, October 11

Alcoa Inc. (NYSE: AA) has already talked down aluminum prices and we have already seen slowing demand out of China talked about by many sectors.  Alcoa keeps maintaining that it can double its business by 2020 and we do not expect that to be changed by management even if it guides lower expectations ahead.  Estimates are $0.23 EPS and $6.24 billion in revenue; next quarter estimates are $0.23 EPS and $6.11 billion in revenue. At $9.80 on Friday, the 52-week range is $8.45 to $19.47 and this one was above $16 at the start of July.  There are many metals stocks to watch, some in aluminum and some in other metals: Century Aluminum Co. (NASDAQ: CENX), Reliance Steel & Aluminum Co. (NYSE: RS); Kaiser Aluminum Corporation (NASDAQ: KALU); Titanium Metals Corporation (NYSE: TIE); and Nucor Corporation (NYSE: NUE).

We do want to quantify that a single firm or a private equity group can buy almost anything if it can get financing for it.  The valuations don’t always make sense on the surface.  The problem is that Whole Foods trades at such a premium today that most private equity firms with more than horse-sense would instantly determine that acquiring this trophy company would come at too high of a price.

For a private equity buyer to own a company, the goal is to ultimately resell the company at a much higher price down the road.  And at the time the deal is closed, a common move is to leverage the company up with debt and then to pay out a bulk of the cash on the books as a dividend to the buyers to instantly recoup 10% to 30% of the investment.  Even if it takes a decade to completely exit the transaction, at least the returns up front and the return of capital along the way can justify the exercise.

It isn’t like private equity investors are exactly eager to make 2.1% in 10-year Treasury notes and it isn’t exactly as if they have made stellar returns in the stock market over the last decade under Warren Buffett’s buy and hold forever strategy.

It was the Daily Mail out of the U.K. that first floated the rumor. To say that we are skeptical of a British media outlet scooping this one, particularly the Daily Mail, would be an understatement.  It noted that the premium and organic grocer could be under the watchful eyes of Kohlberg Kravis Roberts & Co. (NYSE: KKR) and Bain for somewhere around $90.00 per share.  Shares are currently around $59.00 and the 52-week trading range is $34.04 to $68.00.  The market cap today is about $10.4 billion

Thomson Reuters has estimates for Whole Foods’ fiscal September 2011 of $1.92 EPS and $10.12 billion in sales and estimates for fiscal September 2012 of $2.25 and $11.52 billion in sales.  Whole Foods trades at just over 30-times expected earnings and trades at close to 1-times expected revenues.  If you count Whole Foods as a grocery store, it is just too expensive to buy for a private equity firm even at today’s prices.  If you throw up a magical 50% premium to that $90.00 level, then KKR and Bain’s rumored price would be at about 45 year’s worth of earnings and about 1.5-times revenues.

The new company is going to eventually look perhaps more like a Kroger Co. (NYSE: KR) or a Safeway Inc. (NYSE: SWY), but perhaps the real targets are Wal-Mart Stores Inc. (NYSE: WMT) and even Target Corporation (NYSE: TGT).  Yes, Walgreen is going after more and more of the lower-end grocery and consumer products market.

Walgreens is now planning to open some 400 Nice! stores that sell its private label products in grocery and household product categories.  The company is claiming that it will offer its grocery and household products at prices which are up to 30% below other national brands.  The company plans to have most of the Nice! product on its shelves by early 2012.

Walgreen has always been a place to get a flu shot or to get your medical prescriptions or consumer health and body products.  While it carries some basics in food and consumer products, this really sounds like it is going a step farther.  The company said its Nice! label will be on soups, sauces and bakery items, and it will add more and more Nice! brand products over the next few years.

The current store brands include Café W, Deerfield Farms, W and others, but these will be phased out and transitioned to Nice! brand products.  The company has already had its private label brands under dry grocery items like tea, dried fruit, rice and even macaroni and cheese.

The drugstore chain is also going to launch a national marketing campaign in 2012 to drive awareness and generate trial and it is going to have employees promote Nice! products.  This sounds a bit ambitious on the surface, except that it does have some solid data behind its news.  The company noted, “Nielsen consumer research shows that 75 percent of Walgreens shoppers purchase store brands in Walgreens.”  It also noted that the total private label sales market segment has grown from about $64.9 billion in 2005 to $88.5 billion in 2010 and the fastest growing private label segment is actually households with incomes of more than $100,000.00.  The company also backed it up by consumer testing and new design packaging with strong reviews.

Frankly, this seems a bit of a stretch on the surface.  Perhaps there is room for yet one more brand in shopping for grocery and consumer product goods.  The question is whether or not this will cannibalize sales and just create another small format grocery and consumer products store.

If you ever saw the cult film “Repo Man” in the 1980s you may remember a shoot-up scene in the convenience store.  The movie was such a low-budget and undesired production that all of the white-box products on the shelves had no labels and just had a physical name like “Soap” and “Cereal” and on and on.  Walgreen is highly unlikely to fall into that category, but it would be easy to argue that there is a big risk here even if the launch is only 400 stores.

Maybe the real target is just 7-Eleven.  This may turn out to be a profitable move for the company, but it is far from being a riskless move.

JON C. OGG

Our current screen yielded nine retailers in different retail segments.  Apparel, discount stores, groceries, home improvement:  they are all there.  We list the companies in order of the size of the dividend yield in descending order: The Home Depot, Inc. (NYSE: HD); Foot Locker, Inc. (NYSE: FL); Wal-Mart Stores Inc. (NYSE: WMT); Staples, Inc.  (NASDAQ: SPLS); Target Corp. (NYSE: TGT); Safeway Inc. (NYSE: SWY); Gap Inc. (NYSE: GPS); Lowe’s Companies Inc. (NYSE: LOW); Nordstrom Inc. (NYSE: JWN).     Lastly, there is the Retail HOLDRs (NYSE: RTH) and the SPDR S&P Retail (NYSE: XRT) for investors consider.

The nine companies pay dividends ranging from 2.1% to 2.9%.  Beyond attractive dividends,  these companies boast additional positive characteristics including: EPS growth this year exceeding 12%; forward PE’s lower than 13; price to free cash flow (P/FCF) per share lower than 28.50; returns on Equity (ROE) greater than 10%.  All boast good liquidity with an average daily trading volume exceeding 2 million shares. As you can see, something for value investors, income investors, and others.

Except where otherwise noted, the source for all performance and financial data is Finviz.com. There is one other thing for income and retail-sector investors to remember.  Some of these have much more implied upside to what Wall Street is targeting.  We evaluated the implied upside to Thomson Reuters analyst targets so that we could weed out those companies trading above their implied value.

The Home Depot, Inc. (NYSE: HD) pays a 2.9% dividend with an earnings-to-dividend payout ratio 45.7%. Home Depot’s  shares closed at $34.53 Friday. Its 52-week price range is $25.82 to $38.82.  Home Depot has an implied upside of about 19% to its consensus Thomson Reuters analyst price target of $41.04. The most recent upgrades in both Lowe’s and Home Depot got it names as one of the “Top 10 Analyst Calls of the Week” this last weekend as well.

Foot Locker, Inc. (NYSE: FL) pays nearly 2.9% in dividends with a payout ratio of 46.6%.
The company’s forward PE is a modest 12.8, but is among the highest among this group of retailers.  At 10.2%, its return on equity (ROE) is among the lowest on this list.  Foot Locker’s  shares closed at $22.82 Friday.  Its 52-week price range is $11.30 to 25.50. Foot Locker, Inc. has an implied 22% to its consensus Thomson Reuters analyst price target of $27.82.

Wal-Mart Stores Inc. (NYSE: WMT) pays almost 2.8% in dividends with a payout ratio of 29.2%.   Wal-Mart’s  shares closed at $52.82 Friday. Its 52-week price range is $46.59 to 57.12.

Wal-Mart Stores Inc. has an implied upside of about 15.5% to its consensus Thomson Reuters analyst price target of $61.00.  For whatever it is worth, that $61.00 price has only been hit once in the last 5-year period.  Wal-Mart is also in that buyout plan which we have argued could even be large enough to eventually almost take itself private if maintained year in and year out.

Staples, Inc.  (NASDAQ: SPLS) pays a 2.6% dividend with an earnings-to-dividend payout ratio 29.7%.  The share price of Staples closed at $15.35 Friday. Its 52-week price range is $14.75 to 23.63. Staples has an implied upside of about 28% to its consensus Thomson Reuters analyst price target of $19.71.

Target Corp. (NYSE: TGT) pays almost 2.6% in dividends with an earnings-to-dividend payout ratio of 24%.  Target’s  shares closed at $46.53 Friday. Its 52-week price range is $46.15  to  60.40. Target Corp. has an implied upside of about 28% to its consensus Thomson Reuters analyst price target of $46.99.

Whole Foods’ corporate credit rating was raised by one notch to “BB+” from “BB.”  It was also given a stable outlook, implying that no more upgrades to the credit ratings are imminent even though S&P clearly shows that the stable rating is due to expected good profitability and credit metrics continuing to improve over the near-term.

Once upon a time, we showed how Kroger Co. (NYSE: KR) was beginning to go after Whole Foods by offering many of the exact same organic or premium items.  The adjustments made by WHole Foods have been made.  Another trend we have observed through time is that as Whole Foods has grown and grown that it has had to lower its organic offerings and go to more conventional items. It is Safeway Inc. (NYSE: SWY) and Kroger which have the biggest exposure to raw food inflation by our take.  Lastly, the move of organic food sales by Wal-Mart Stores Inc. (NYSE: WMT) has only added to the organic pool with higher margin sales rather than acted as a true hit to Whole Foods. 

S&P called Whole Foods the leader in organic and natural foods retailers and noted that this segment has outperformed traditional grocery stores.  S&P believes that will also continue.  Nothing really new to share there.

The catch is that S&P said it views the risk profile as fair because of the competitive nature of the industry, and it also noted food inflation could limit the recent trends.  It ends by calling Whole Foods’ “financial risk as significant.”

Our take is quite a bit different and we think that S&P is being too conservative here.  24/7 Wall St. does not consider Whole Foods an organic and natural product grocery store any longer.  Whole Foods is simply a luxury product seller.  How many late sovereign ratings have come out of the ratings agencies? 

Our take is that Whole Foods is a late upgrade.  The corporate credit rating should be higher.  S&P has “BBB-” as the lowest rung of investment grade.  This is still junk-rated if you consider that.  Whole Foods is well enough established that it has been able to withstand the worst of the recession rather easily and it has many significant market opportunities that it has not even entered into with some smaller store formats.

Whole Foods shares are trading up around $62.00 and its 52-week trading range is $33.96 to $66.87.  Thomson Reuters has a consensus price target for the stock of $65.64.  It may be too late to buy Whole Foods stock on a risk-reward basis, but its corporate credit rating should probably not be junk-rated as of 2011.  That is our take anyway.

JON C. OGG

Cattle futures hit a new high of $1.2155/pound, with the rise linked to yesterday’s US Department of Agriculture report on low corn and soybean stocks. As feed prices have risen, herd sizes have shrunk and fewer cattle are being sent to feedlots for final fattening.

Ranchers would like very much to sell, but the feedlots aren’t buying. Feedlots that haven’t hedged grain prices lost $6/head on animals sold in February, compared with a profit of $20/head in February 2009. That’s the story in a nutshell.

The impact on consumer prices will start to show up as retailers give up trying to hide their own higher costs. Grocery stores like Safeway Inc. (NYSE: SWY), Kroger Co. (NYSE: KR), and Wal-Mart Stores Inc. (NYSE: WMT) saw wholesale prices rise nearly 8% in February while retail prices rose less than 3%. Wendy’s/Arby’s Group, Inc. (NYSE: WEN) and Jack in the Box, Inc. (NASDAQ: JACK) estimate that beef costs could rise 15% in 2011. McDonald’s Corp. (NYSE: MCD) and Yum! Brands, Inc. (NYSE: YUM) could also raise prices, but by smaller amounts due to hedging on supply costs for beef, corn, and wheat.

Corn prices have risen sharply in the last two days, driven primarily by a USDA report that stocks are down and the belief among traders that even the amount of US acreage targeted for corn planting won’t be enough to meet expected demand.

Corn prices are also propped up be demand for ethanol to blend with gasoline. A federal mandate to produce 12.6 billion gallons of ethanol for blending with gasoline will require about 5 billion bushels of corn, or about 30% of the expected corn crop. Not only does the federal government mandate the production of ethanol, it also pays a “blender’s” credit of $0.45/gallon, most of which goes back to the corn grower.

The Wall Street Journal reports that the corn-ethanol lobby is having discussions with federal officials to either scale back or eliminate the credit as it now exists.  The credit could be replaced with a payment tied to the price of oil which would not take effect until corn-ethanol prices fall below a given floor with respect to crude oil prices.

Finally, commodities trader Glencore International AG has been approved for an IPO on the Hong Kong stock exchange. The company also plans an IPO on the London exchange, and the two offerings are expected to raise about $10 billion. According to the WSJ, Glencore has hired Citigroup, Inc. (NYSE: C), Credit Suisse Group (NYSE: CS), and Morgan Stanley (NYSE: MS) to handle the IPOs.

Paul Ausick

AllianceBernstein Holding L.P. (NYSE: AB) Cut to Neutral and $26 target at BofA/ML.
Applied Materials, Inc. (NASDAQ: AMAT) Raised target to $15 at BofA/ML.
ARM Holdings plc (NASDAQ: ARMH) Reiterated Neutral on overvaluations at BNP Paribas.
AT&T Inc. (NYSE: T) Reiterated Buy at Argus.
EMBRAER (NYSE: ERJ) Raised to Conviction Buy List at Goldman Sachs.
Hasbro Inc. (NASDAQ: HAS) Started as Buy at Jefferies.
IAC/InterActiveCorp. (NASDAQ: IACI) Cut to Neutral at Goldman Sachs.
Intel Corporation (NASDAQ: INTC) Reiterated Outperform and $28 target but raised estimates at Credit Suisse; Reiterated Buy at Argus; Maintained Buy with $27 target at Gleacher & Co.; Maintained Buy at Gabelli & Co.
KLA-Tencor Corporation (NASDAQ: KLAC) Raised target to $48 at BofA/ML.
Mattel Inc. (NASDAQ: MAT) Started as Buy at Jefferies.
Merck & Co., Inc. (NYSE: MRK) Maintained Buy on weakness at Argus.
Novellus Systems, Inc. (NASDAQ: NVLS) Raised target to $38 at BofA/ML.
Potash Corp. of Saskatchewan (NYSE: POT) Reiterated Outperform but Raised target to $189 at Credit Suisse.
Safeway Inc. (NYSE: SWY) Cut to Sell at S&P Equity Research (late-Thursday call).
TD AMERITRADE Holding Corporation (NASDAQ: AMTD) Cut to Market Perform at BMO.
Varian Semiconductor Equipment Associates Inc. (NASDAQ: VSEA) Raised to Neutral with $45 target at BofA/ML.

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JON C. OGG