UNFI 1Q22 Earnings Analysis


UNFI Stock Analysis
  • $140 billion potential market with currently $27 billion market and $38 billion existing customer opportunity

  • Major Competitors: SpartanNash (NASDAQ:SPTN), C&S Wholesales Groger and Kehe

  • Minor competitors (serves mostly to restaurants, schools and other small units): Sysco (NYSE:SYY) and US Food Holdings (NYSE:USFD)

  • Over 60 distribution centers (total 28.8 million sq ft) vs 19 for SPTN (8.2 million sq ft)

  • Diversified with moat in fast growing natural and organic


UNFI Stock Analysis

  • Customers:

  • Chains

  • Independent retailers

  • supernatural

  • retail

  • Largest customer: Whole Foods with about 18% of revenues in 2020

  • 6 product categories:

  • Grocery and general merchandise

  • Produce

  • Perishables and frozen foods

  • Nutritional supplements and sports nutrition

  • Bulk and food service products

  • Personal care items

  • 2 business segments

  • Wholesale

  • Retail


Catalysts:

  • Changing consumer habits into natural and organic

  • Deal with Amazon extended till 2027

  • Inflation is a tailwind


Risks:

  • Took high debt for Supervalu acquisition with high-interest payments

  • Depends on derivatives to handle debt repayments at lower interest rates

  • Unionized workers and high pension expenses

  • Not going through with divestitures of retail business

  • New CEO yet to prove himself


Financial Analysis:


UNFI Stock Analysis

Valuations

  • My personal Biases:

  • Bullish on industry

  • Expecting high inflation in the coming years with economic expansion

  • Belief in ability to repay debt

  • Largest position of my portfolio at 12.2%

  • Assumptions for base case:

  • Use Discounted Owner’s earnings to calculate intrinsic value

  • Revenue growth of 4% per year (as per forecast)

  • Earnings Growth of 16% per year (as per forecast)

  • Depreciations of $300 million per year and Capex of $300 million per year

  • Look at extreme case scenario to see if the company can repay its debts

  • All of owner’s earnings used to repay debt

  • Discount Rate of 13% till 2026

  • Terminal Growth rate of 3%


UNFI Stock Analysis

  • Bull case with extra 10% extra Owner’s earnings in 2026 compared to base

  • Bear case with 10% less owner’s earning in 2026 compared to base

  • No change in shares outstanding

UNFI Stock Analysis

Conclusion

  • Slightly Undervalued but not with margin of safety

  • 7% expected returns per year


UNFI Stock Analysis









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