High volumes of daily stock trade (281,644) and the surrounding optimism is pushing the United Natural Foods (UNFI, Financial) stock to new high prices not seen previously in quite some time. Investment firm Wedbush has already pushed for an estimated high of $94, based on price-to-earnings multiples of 27.5, and adjusted earnings per share (EPS) at $3.40 for 2016. To put it differently, Wedbush has put a tag of "outperform" on United Natural Foods stock. Recently, it even touched its own 52-week high point at $81.63,but lost out a bit on the latest closing at $80.01. This puts the market capital at $4.055 billion and an attractive P/E (profit-equity) ratio of 30.87.
Other analysts in the market are giving in their diversified viewpoints. Some are of the view that the 52-week high which the company touched recently might actually be the sign of an upcoming decline, and that too at a steady pace. The optimists however, say that the high point is a signal for the new upcoming momentum, and the current period might the best to pick up the stock in sizable chunks as later the prices might just be too high to gather volumes of this Rhode Island based food maker. This wave of optimism has also rubbed off on the "human resource" weather of the company as Journal Times has reported a hiring spree faster than seen before. United Natural Foods had targeted a 200-strong employee base at their Southwest distribution center, but within eight months, they have crossed that number to 220. Order selection and warehouse operations are some of the other areas where jobs are also opening up, other than the prospect of hiring 25 other members over this season itself.
Why is United Natural Foods so attractive?
There are mentionable reasons why as to the United Natural Food stock is so attractive.
- There is an already mentionable customer base, and the prospect that people embrace more of natural food products in place of processed ones. The major customers include Whole Foods Market (biggest customer), conventional supermarket chains Safeway and Kroger, apart from a few independent names. There are more than 65,000 different products from to choose across 6sixmain categories; grocery and general merchandise, produce, perishables and frozen foods, produce, nutritional supplements and sports nutrition, bulk and food service products, and personal care items.
- In its non-core operation areas, which have been noted to be a weakness in recent years, United Natural Foods is expected to gain considerable strength, especially after acquiring Tony’s Fine Foods in the past year. This will drive up their revenue generation capabilities, apart from the advantages of upscaling which will positively affect the cost structure. With additional capabilities, cost management is expected to be under better control, thus having an opportunity for higher returns on the shares.
Competitor analysis
KeHE Distributors LLC is the main competitor for United Natural Foods currently. Other than having similar business operations in terms of capabilities, but also that the company has recently acquired Nature’s Best, thus giving them in-roads into the region of California. The expansion of the 400,000+ square foot facility will be generating at least 200 new job openings, apart from gaining on the customers of the region. The city’s development council has been backing the move greatly, which expedites the process of turning the facility into a productive one. At the industrial level, it does give rise to speculation about a ‘consolidation mode’ being activated, thus.
Final thoughts
In the short-term scheme of things, United Natural Foods looks secure despite what he competition is up to. With their current scaling capabilities and the acquisition of Tony’s Fine Foods last year, the Rhode Island based company looks strong in every manner possible, and will continue to be the "big guy" of the market. However, the medium and long term picture will be a far more interesting episode to see, as only complacency on their part could spoil the party. There are 65,000 odd products across various categories and it has spent a decent buck on acquiring Tony’s Fine Foods, but it has to be backed up by steadily growing sales volumes and low stock retention at their facilities. This in turn would show up on the books and will duly test the management’s capability to retain the current interest in the stock.
