United Natural Foods, Inc.

UNFI Details
 
Preliminary Third-Quarter Results & Covid-19 Update: United Natural Foods, Inc. (NYSE:   UNFI) is the top distributor of natural, organic and specialty food and non-food products in the United States and Canada. The company brings over 1,10,000 excellent-quality natural, organic and specialty products, comprising national, regional, and private label brands in six product categories. During the third quarter for the period ended May 2, 2020, the company reported net sales of $6,668 million, up 12% year over year. Adjusted EBITDA soared 32% in the quarter and came in at $222 million, while adjusted earnings per share increased 130% and stood at $1.40 per share. The company witnessedrobust results on the heels ofrobust demand led by coronavirus outbreak. This, in turn, aided the company to manage its fixed costs and capitalize on synergy related to Supervalu buyout. Additionally, results were strengthened by improvements from the Cub and Shoppers retail banners. The company also took necessary measures to safeguard its employees’ health and well-being and introduced safety measures at distribution centers and retail outlets. 
 
The company reduced its net debt by ~$290 million in the third quarter, which includes a $10-million benefit from asset sales. As of 2 May 2020, the company’s outstanding net debt stood at ~$2.68 billion and total liquidity came in around $1.2 billion. 
 

Key Highlights (Source: Company Report)
 
Other Recent Update: On April 30, 2020, the company stated that it appointed Jim Gehr as its new Chief Supply Chain Officer effective from May 4, 2020. In another update, the company stated that it has appointed Stacey Kravitz as the new President of UNFI Canada, effective from August 2, 2020.
 
Conclusion: With the rising COVID-19 impact, the social distancing and stay-at-home trends have also spiked up demand for several staple products, including those of UNFI. The company’s robust preliminary results for 3QFY20, along with high customer demand were key positives. We note that the company has taken necessary steps to address the increasing demand amid the crisis, thanks to its front-line distribution center, transportation and retail workers. The solid year-to-date performance also triggered the company to suspend its guidance for FY20 and plans to report the fresh guidance after reporting third quarter results in early June.
 
Valuation Methodology:P/E Multiple Based Relative Valuation (Illustrative)
  
P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of UNFI closed at $18.32 with a market capitalization of ~$982.3 million. The stock made a 52-week low and high of $5 and $23.8, respectively, and is currently trading above the average of its 52-week trading range. The stock has delivered a positive return of ~82.63% and 139.79% in the last one month and three months, respectively. Debt to equity multiple in Feb’20 stood at 2.73x, higher than the industry median of 0.99x. The company remains focused on cost-reduction efforts. Additionally, UNFI is dedicated towards certain strategic targets to enhance its customer base, escalate its broad line distribution channel, and improve profitability. Consequently, it is concentrating on generating a sustainable and solution-based supply chain network. Considering the above factors, we have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with a limited upside (in % terms). For the purpose, we have taken the peer group - Sprouts Farmers Market Inc (NASDAQ: SFM), Kroger Co (NYSE: KR), and Dollar Tree Inc (NASDAQ: DLTR). Hence, we have a watch stance on the stock at the closing price of $18.32, up 1.33% on 15 May 2020.
 
 
UNFI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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