Seaport Global Sticks To The Sidelines On United Natural Foods, Acknowledges 'Stock Is Not Expensive'

Grocery distributor company United Natural Foods Inc UNFI was a clear beneficiary of the COVID-19 pandemic environment amid a major shift towards retail consumer food spending, Seaport Global Securities analysts said in an initiation note.

The United Natural Foods Analyst: Eric Larson initiated coverage of United Natural Foods with a Neutral rating.

The United Natural Foods Thesis: United Natural deserves credit for its "superb" performance during a "very difficult" operating environment, Larson wrote in the note. The company managed to stand out among its peers by sourcing products that others couldn't and this resulted in a new $1 billion annual sales customer, Key Foods Cooperative.

Looking forward, retail grocery sales could remain elevated through the first half of 2021, but it is a "tough call" to model the sales trajectory afterward, the analyst wrote. There is plenty of pent-up demand to dine out, but at the same it is not clear if a large enough number of independent restaurants and away-from-home establishments will "survive" to address the demand.

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Meanwhile, United Natural allocated part of its strong revenue growth to deleverage the balance sheet as its net debt leverage ratio could end 2021 at 3.5 times, or at least a year ahead of management's prior timeline.

Finally, a combination of strong execution and a clear competitive advantage may be factored into the stock's price that is up nearly six-fold since April 2020, the analyst wrote. Nevertheless, the "stock is not expensive" on an EPS or EV/EBITDA multiple basis.

WBA Price Action: Shares of United Natural Foods were trading higher by 3% Friday afternoon at $27.24.

(Photo by Dan Gold on Unsplash)