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  • Writer's pictureIshfaaq Peerally

United Natural Foods Stock Analysis

UNFI Stock Analysis

Business Description:

  • $140 billion potential market with currently $25 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 until 2025 for exclusive distribution to Whole Foods

  • Divestiture of retail business to raise capital for debt repayment

  • Pandemic favors business

  • Leased trucks - no fear of depreciation of assets or electrification


  • Took high debt for Supervalu acquisition with high interest payments

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

  • Could lose largest customer if Amazon decides not to renew contract in 2025

Financial Analysis:

  • Revenues of $27.2 billion in TTM up from 26.5 billion in FY20 (ended in July 2020) and $8.4 billion in FY16

  • 91% of revenues from wholesale and 9% from retail

  • Wholesale revenue growth of 18% from FY19 to FY20

  • Operating income of 403 million in TTM vs $333 million for FY20

  • 87% of Adjusted EBITDA from wholesale and 13% from retail

  • Net income of $109 million in TTM vs net loss of $274 million for FY20

  • Net loss in FY19 and FY20 mostly because of impairment of goodwill of $293 million and $495 million respectively, after the Supervalu acquisition

  • FCF of $365 million vs $284 million for FY20 (excluding $102 million in divestitures from sales of retail stores)

  • Owner’s earnings (including divestitures as they offset interest payments to bondholders) of $351 million in TTM vs $382 million in FY20

  • Balance Sheet

    • Total assets: $7.78 billion ; total liabilities: $6.63 billion; book value: $1.15 billion

    • Cash: $49 million, debts: $2.62 billion, current assets: $3.94 million, current liabilities: $2.37 billion

UNFI Stock Analysis


  • My personal Biases:

    • Bullish on industry

    • Belief in ability to repay debt with divestitures

    • Thinking that Amazon won’t choose to have their own distribution system so as not to attract antitrust regulators and keep using UNFI

  • Assumptions for base case:

    • Use Discounted Owner’s earnings to calculate intrinsic value

    • $100 million in divestitures in 2021 and 2022 each

    • Revenue growth of 10% per year

    • Profit margins of 1.5% in the long-term (2021 and 2022 lower with synergy costs)

    • Depreciations of $300 million per year and Capex of $200 million per year

    • All of owner’s earnings used to repay debt

    • Discount Rate of 18% till 2026

    • Terminal Growth rate of 2%

UNFI Stock Analysis
  • Bull case with extra 10% extra revenues in 2026 compared to base

  • Bear case (loss of Whole Foods as customer) with 30% less revenues in 2026 compared to base

  • Shares outstanding grow from 56 million to 70 million

UNFI Stock Analysis


  • Undervalued even with 50% margin of safety

  • 14% expected returns per year

  • Debt risk can be offset my divestitures of generation of cash from operations

  • Moderate risk but high reward potential, BUY rating at current price

UNFI Stock Analysis

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