Bring Back Our Growth: United Natural Foods Serves Up Q4 Beat

United Natural Foods, Inc.UNFIearnings report Wednesday prompted a more than 10-percent rally in the stock by Thursday morning, but were the results good enough to impress Wall Street analysts?

Bank Of America: Risks Ahead

Bank of America's Marisa Sullivan maintains an Underperform rating on United Natural Foods' stock with a price target boosted from $35 to $36. The food company's earnings per share in the fourth quarter was better than expected but sales growth of 5.7 percent year over year fell short of the 6.9 percent expected, the analyst noted. The sales growth shortfall is attributed to the ongoing challenging retail environment and the absences of inflation and both of these headwinds are expected to remain in place.

On top of that, United Natural Foods will continue to face competitive pressure at the wholesale level and from conventional distributors which will also add to ongoing margin pressures, Sullivan continued.

Looking forward, the company's recent acquisitions will likely provide access to faster-growing categories, this doesn't take away from growth concerns in the fresh category, which accounts for 15 percent of the overall business.

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Loop Capital: 'Solidly Visible' Growth Ahead

Loop Capital Markets' Andrew Wolf maintains a Buy rating on United Natural Foods' stock with a price target boosted from $44 to $50.

Among one of the most notable aspects of the earnings report is a 4.7 percent year-over-year growth in internally generated sales, Wolf commented in a research report. This should be evidence of the company gaining further traction after making strategic changes, including a restructuring of the business to a three-region reporting structure.

Looking forward to fiscal 2018, the company could benefit from an increase in product-cost inflation from negative 0.1 percent in fiscal 2017 to positive 1 percent, Wolf noted. As such, food distributors as a whole should be better off versus retailers to pass through inflating product costs.

BMO: Lack Of Whole Foods Clarity

BMO Capital Markets' Kelly Bania maintains a Market Perform rating on United Natural Foods' stock with a price target boosted from $38 to $40.

United Natural Foods' earnings report was a bit weak on the sales side but better on the margins side and management's longer-term guidance implies "a modestly more favorable gross margin but weaker sales," Bania commented in a research report. But at the same time, there is a lack of clarity on the company's relationship with Whole Foods, which is seen as an overhang for the stock.

Whole Foods is United Natural Foods' biggest client, and the relationship between the two grew in the quarter, the analyst continued. Specifically, sales to Whole Foods rose 6.8 percent in the quarter, which marks the strongest pace in six quarters. However, this could be the result of price investments and marketing by Whole Foods new owner, Amazon.com, Inc. AMZN.

While the relationship between the two could continue accelerating in the near term a lack of clarity what will happen post-2025 when the contract between two expires represents an "elephant in the room" and an overhang for the stock.

Jefferies: Solid Earnings But Lackluster Sales

Jefferies' Christopher Mandeville maintains a Hold rating on United Natural Foods' stock with a price target boosted from $38 to $39.

The company's earnings report consisted of a better than expected earnings read but sales were lackluster and continue to disappoint, Mandeville commented in a research report. Unfortunately, this trend is likely to continue as management's 2018 guidance implies once again solid earnings but at the expense of poor sales growth.

Over the longer term, the company is modeling a mid-single digit sales growth but investors have valid reason to "lack similar conviction" in the highly competitive landscape, the analyst emphasized. Nevertheless, management does have sufficient financial flexibility to oversee a stock buyback but the money may be better off used for future M&A deals.

At time of publication, shares of United Natural Foods were up 10.37 percent at $41.07.

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