UNFI - Embedded Expectations Analysis - 2021 03 25
United Natural Foods Inc. (UNFI:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.3x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and although management's concerns about their sales growth, cross-selling deal wins, and product portfolio suggest the potential for near-term headwinds, market expectations are overly bearish, suggesting long-term equity upside is likelySpecifically, may lack confidence in their ability to sustain sales growth, continue to improve adjusted EBITDA, and execute their debt reduction initiatives. Furthermore, they may have concerns about consolidation issues in the Pacific Northwest, the sustainability of large independent wins in their cross-selling pipeline, and the potential of their new e-commerce platform, Community Marketplace. Management may also lack confidence in their ability to benefit from their productivity initiatives, further extend the duration of their Whole Foods contract, and finalize their planned launches for the Brands+ portfolio. Moreover, they may be exaggerating the competitive advantages of their Essential Everyday brand, the opportunity to expand their unique customer network, and the breadth of their product portfolio
Although management's concerns about their sales growth, cross-selling deal wins, and product portfolio suggest the potential for near-term headwinds, market expectations are overly bearish, given the firm's exposure to healthy foods and at-home consumption tailwinds. As such, long-term outperformance is likely warranted
United Natural Foods is a distributor of natural, organic, specialty, produce, and grocery and non-food products, and provider of support services in the United States and Canada. The company's selection of products includes nationally advertised brand name and private-label products, including grocery, general merchandise, home, health and beauty care, and pharmacy, which are sold through its Wholesale segment to wholesale customers and through its subsidiary, SUPERVALU INC.'s-operated retail stores to shoppers. The company provides marketing services for its customers and suppliers, including consumer and trade marketing programs, as well as programs to support suppliers in understanding its markets.
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