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Why The Fuss Over Amazon Means It's Time To Buy US Foods And Performance Food Group

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Why The Fuss Over Amazon Means It's Time To Buy US Foods And Performance Food Group

Amazon.com, Inc. (NASDAQ: AMZN)'s proposed acquisition of Whole Foods Market, Inc. (NASDAQ: WFM) triggered a sell-off among food distribution stocks. However, Guggenheim analyst John Heinbockel sees this price movement creating a buying opportunity for two stocks in this sector.

“Shares of the Big Three foodservice distributors fell 2-5% Friday on conjecture that Amazon could eventually target the sector for expansion. This seems highly unlikely to us, especially in the near-to-intermediate-term,” Heinbockel noted.

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Thus, Heinbockel placed Buy ratings on Performance Food Group Co (NYSE: PFGC) ($26.80 price target) and US Foods Holding Corp (NYSE: USFD) ($26.67 price target).

Why An Expansion Is Unlikely

Heinbockel said: “Foodservice distribution requires a separate, dedicated supply chain as well as a field-level salesforce to market to independent accounts. In addition, there is usually significant inertia with these accounts, especially as it relates to fresh food.”

He also noted how challenging it would be Amazon to build its own food distribution supply chain, as it is a very difficult model for a business to build.

Overall, his bull case remains intact as fundamentals are still solid for food production stocks, even in a competitive consumer environment. He specifically stated how the big three food-service distributors are continuing to gain market share, see accelerating M&A activity, use free cash flow to create value and benefit from costs reductions.

Related Links

Chef's Warehouse, Performance Food Group: 2 Food Names Analysts Find Appetizing

Amazon's Acquisition Of Whole Foods Should Create Lower Prices, Offer Better Consumer Experience

Latest Ratings for PFGC

DateFirmActionFromTo
Jul 2020BTIGInitiates Coverage OnBuy
May 2020GuggenheimMaintainsBuy
Apr 2020BMO CapitalDowngradesOutperformMarket Perform

View More Analyst Ratings for PFGC
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Related Articles (PFGC + USFD)

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