2 Food Stocks Buckingham Research Is Buying

• Buckingham Research initiated coverage of Mondelez International Inc MDLZ and United Natural Foods, Inc. UNFI on Monday.
• The firm issued Buy ratings for both stocks, setting a $56 price target for Mondelez and a $61 price target for United Natural Foods.
• Shares of both companies are slightly up on Monday trading.

Buckingham Research analyst Eric Larson initiated coverage of Mondelez and United Natural Foods on Monday, issuing Buy ratings for both stocks. However, the expert sees more upside potential in the former, where the target price implies more than 20 percent upside.

Mondelez International

According to a report issued Monday, analysts at Buckingham Research believe that Mondelez offers one of the most attractive investment opportunities within the consumer packaged goods industry. This belief is based on the company’s “superior revenue growth prospects, significant productivity savings, and substantial margin improvement.”

These elements position the stock uniquely for considerable shareholder returns, the experts assure. In addition, the company is repurchasing an extra 10 percent of its equity market cap (there are $6.9 billion remaining) through 2018.

Consequently, they consider Mondelez represents a “core holding for investors,” and believe the stock could even reach $60 in their best-case scenario – or fall to $36 in the worst case.

United Natural Foods

For United Natural Foods, Buckingham sees an upside potential of roughly 13 percent. The analysts envision a best-case scenario where the stock reaches $66, and a worst-case scenario, where the shares tumble to $43.

In the note, the experts notice that organic sales are beginning to see improving growth rates (adjusted +8.4 percent versus 6.8 percent). In addition, the company has been adding warehouse capacity for new and existing customers “equivalent to an estimated 25% of total square footage, with incremental perishable products capabilities, which should fuel growth for the next 2-3 years.”

Finally, Larson and his team point out that free cash flow will be another source of growth over several years to come. Thus, they recommend buying the stock now that it is trading very close to the lower end of its historical P/E range and “is also the cheapest amongst its peer group.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.