I understand that the FTC is worried about Whole Foods wielding its market power on the organic food market. Those highly successful, hippie capitalists in Austin will attempt to take advantage of consumers who are more than willing to pay premium prices for healthier foods.
But that view completely misses the bigger industry picture. Kroger (KR), Safeway (SWY), Supervalu (SVU) and Wal-Mart (WMT) combine for over $300 billion in grocery sales. That makes Whole Foods' sales of $9.5 billion in 2008 look, well, not exactly dominant.
Let's put Whole Foods' market position into perspective. If Wal-Mart allocated just 10% of its grocery sales (or about 3 aisles per store) to selling organic foods, its sales from organic foods would exceed that of Whole Foods. Now, that's market power. It's time to let this case go away.
SK Telecom Leads Korean Market
SK Telecom Co., Ltd. (SKM) is the leader in the Korean wireless market, enjoying approximately 51% market share. Given limited growth prospects in South Korea, SKM is pursuing business opportunities in emerging markets, such as Vietnam.
Other avenues for growth include the growing domestic IPTV market (through investment in Hanaro Telecom), a partnership with China Unicom (CHU), and sizable opportunities in the United States with a recent investment in Virgin Mobile (VM) and potential collaboration with Sprint Nextel (S). Performance in the recent quarter has been tepid with year-over-year declines in wireless revenue and net income.
However, the company continues to grow its subscriber base and sustains an attractive dividend payout. Downside is limited, in our view, and we provide a Hold rating until we have more visibility regarding international growth and improved earnings in 2008. We also await signs of momentum in relation to SK Telecom's business prospects with partners in the United States, and China Unicom in Asia.
The stock is trading at a forward multiple of 9.8x our fiscal year 2008 EPADR estimate, which is at a discount to its peers in the industry. Lower forecasted growth parameters, ongoing regulatory risk, and corporate governance concerns warrant the discount. We believe the current valuation adequately reflects the company's progress and provides limited appreciation opportunity over the next six months. We set a six-month target price of $22 based on 10.6x our fiscal year 2008 EPADR estimate.
