3 Reasons Deutsche Bank Is Bullish On US Foods, Sees 17% Upside

US Foods Holding Corp USFD has the ability to gain share in the highly fragmented U.S. food service distribution industry, Deutsche Bank said while initiating the coverage of the stock with a Buy rating and $28 price target.

Following are three reasons why the brokerage is bullish on US Foods Holding:

"1) scale as the 2nd largest foodservice distributor; 2) best-in-class technology; and 3) a proven ability to integrate acquisitions," analyst Shane Higgins wrote in a note.

Higgins expects the company to generate low double-digit EBITDA growth and strong free cash flow driven by gaining share in the more profitable independent restaurant channel, and growing sales of higher-margin private brands.

Related Link: US Foods Gets Buy Rating From Citi, Sees Robust Runway For Future Growth

US Foods would also benefit from the increasing sales of higher margin center-of-the-plate and produce categories. The company offers best-in-class technology such as one common system, proprietary tools such as CookBook, and advanced analytics.

The move of US Foods to a common IT platform places a significant advantage versus peers that operate across multiple legacy platforms.

In addition, the company is saving costs and increasing efficiencies from consolidating facilities, cutting administrative expenses, aggregating indirect spend and boosting sales force productivity.

"We also expect USFD to generate strong FCF, which will help de-lever the balance sheet and go towards strategic acquisitions," Higgins highlighted.

US Foods intends to pursue strategic acquisitions to augment its organic growth and the strategy makes sense as the company has a strong track record of successfully integrating acquisitions, driving synergies and attractive returns.