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  • Writer's pictureIshfaaq Peerally

UNFI 2Q22 Earnings Analysis

UNFI Stock Analysis

Business Description:

  • $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


  • Changing consumer habits into natural and organic

  • Deal with Amazon extended till 2027

  • Inflation is a tailwind


  • 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


  • My personal Biases:

    • Bullish on industry

    • Expecting high inflation in the coming years with economic expansion

    • Belief in ability to repay debt

    • Second largest position of my portfolio at 8.5%

  • 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 10% per year (Less than forecast of 16%)

    • 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


  • Undervalued with margin of safety

  • 18% expected returns per year

UNFI Stock Analysis

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