United Natural Foods (UNFI) has been on fire to start the year with a more than 100% gain. This organic, natural, and specialty foods distributor does business throughout the United States and Canada. All in all, UNFI provides more than 1,000 unique products including some that are not food items.
UNFI products span categories ranging from perishables to nutritional supplements, frozen foods, general merchandise, sports nutrition, bulk foods, and personal care. The company’s stock has soared in the first three months of the year, largely as a result of robust consumer spending on food items while quarantining.
Though there is certainly the potential for UNFI shareholders to take some profit off the table with the expectation that the demand for natural, organic, and specialty foods will wane as society returns to normalcy, UNFI just might be worth holding onto for the long haul. Let’s take a look at whether UNFI is deserving of a place in your portfolio at its current price.
The Case for UNFI
UNFI has a tempting forward P/E ratio of 11.61. This figure might have scared away some investors back in the comparably conservative investing era of the 80s and 90s. However, a forward P/E below 12-15 in the year 2021 is now considered quite low. The low P/E is all the more attractive considering UNFI trades a mere $5 below its 52-week high of $41.37.
UNFI’s historical EPS growth rate is a mere 0.3%. However, modern-day investing is all about trading at price levels that are by projected growth across the years and decades ahead. UNFI’s EPS is likely to grow nearly 25% in the year ahead, a figure that is considerably higher than the average for the industry of 16%. UNFI is also intriguing as it has a year-over-year cash flow growth of over 31%, a growth rate that is significantly higher than most other publicly traded companies in UNFI’s sector. In fact, the average industry cash flow growth rate is less than 2%.
UNFI’s latest quarterly earnings show revenue spiked more than 7% for the quarter, hitting an impressive $6.89 billion. The company’s gross margin is up a bit from 14.26% to 14.39% as a result of a reduction in markdowns. UNFI’s operating expenses in terms of revenue percentage decreased 82 basis points, falling to 12.59% as a result of elevated sales, reduced benefit costs, and a bad debt expense totaling nearly $29 million. UNFI’s adjusted operating income jumped from $54.1 million all the way to $123.1 million. The icing on the cake is UNFI’s contract extension with Whole Foods, extending the partnership all the way through 2027, essentially minimizing risk for UNFI investors.
The Analysts’ Take on UNFI
The analysts are no longer as bullish on UNFI as they were in prior months and years, largely because the stock has skyrocketed in a brief period of time. The analysts’ average price target for UNFI is $23.12, meaning it has a downside potential of nearly 17%. However, the analysts’ high target price for the stock is $40. The analysts’ low target price for UNFI is $17.
UNFI POWR Ratings
UNFI has an A grade in the Value component of the POWR Ratings. However, the stock’s overall POWR Rating is a C. Furthermore, UNFI has C grades in the Quality, Momentum, and Stability components of the POWR Ratings. If you are curious as to how UNFI fares in the Growth and Sentiment components of the POWR Ratings, you can find out by clicking here.
Of the 82 publicly traded companies in the Food Makers category, UNFI is ranked 48th. Investors who would like to learn more about the stocks in the Food Makers segment can find out more by clicking here.
Will UNFI’s Rally Continue?
Possibly. However, there is only so much money that can be made from food sales, especially food sold at grocery stores. The fact that UNFI has a C POWR Grade should give investors pause. The stock also has C grades in the majority of the POWR rating components and is ranked outside the top half of the publicly traded companies in the Food Makers space.
If UNFI dips in the weeks ahead, it might make sense to establish a position in the stock. Otherwise, investors might be best served to hold off on a UNFI investment.
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UNFI shares were trading at $34.89 per share on Tuesday afternoon, down $1.89 (-5.14%). Year-to-date, UNFI has gained 118.47%, versus a 5.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…
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