United Natural Foods, Inc.
Covering Analyst: Matthew Miller
Email: Miller24@uoregon.edu
Business Overview
› Founded 1996 from merger of two regional distribution
companies
› First nationwide distributor of natural, organic and
specialty products
› First firm in U.S. certified by QAI
Scale of Operations
› U.S. & Canada
› 27,000 customers
› 26 distribution centers
› 65,000 SKU’s
› 4,800 suppliers
Products as Percent of Revenue
5%
4%
6%
Grocery/General
Produce/Perishables
12%
51%
Frozen
Bulk/Food Service
Personal Care
Nutritional
23%
Wholesale Industry
› Revenue projected to decline by 1.5% in 2013
› Low margins
› Competition from direct distribution
Natural & Organic Products Industry
› Growing at about 10% per year
› Expected to continue at 9% or higher
› Growth driven by demand for healthy and environmentally
sustainable products
Comparables
› Growth
› Beta
› Margins
› Industry Similarities
› Market Capitalization
Comparables
› Whole Foods Market – 30%
› Costco – 30%
› Core-Mark – 20%
› Hain Celestial – 10%
› Sysco – 10%
Comparables Valuation
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
P/E
Price Target
Current Price
Overvalued
Implied Price
Weight
88.71
0.00%
64.89
0.00%
52.25
33.00%
49.39
33.00%
56.44
0.00%
53.50
34.00%
$51.73
52.49
(1.44%)
DCF Analysis
› Revenue Model
– 4 segments
›
›
›
›
Supernatural
Conventional
Natural Products Retailers
Other
› Revenue growth driven by continued demand for healthy,
safe & sustainable products
Percent of Revenue by Segment 2012
5%
24%
35%
Natural Product Retailers
Supernatural (WFM)
Conventional Supermarkets
Other
36%
Revenue Mix Over Time
100%
90%
Other
80%
70%
Conventional
60%
50%
Supernatural (WFM)
40%
30%
Natural Products
Retailers
20%
10%
0%
2012A
2013E
2014E
2015E
2016E
2017E
2018E
Percent of Revenue by Segment 2018
5%
28%
28%
Natural Products Retailers
Supernatural (WFM)
Conventional
Other
39%
DCF Assumptions
› Cogs increasing as a % of revenue
› Gross margin decreasing
› SG & A decreasing as a % of revenue
› Operating margin expanding 9-12 bps
DCF Valuation
› Implied price of DCF: $38.10
› Overvalued by 27.42%
DCF Valuation
› Possible reasons
– Beta
– Market Risk Premium
Sensitivity Analysis of Beta
Implied Price
Adjusted Beta
Terminal Growth Rate
38
2.0%
2.5%
3.0%
3.5%
4.0%
0.65
45.49
50.40
56.93
66.00
79.49
0.75
38.25
41.58
45.81
51.35
58.92
0.85
32.82
35.19
38.10
41.75
46.48
0.95
28.61
30.35
32.43
34.98
38.14
1.05
25.25
26.56
28.11
29.95
32.18
Sensitivity Analysis of Market Risk Premium
Implied Price
Market Risk Premium
Terminal Growth Rate
38
2.0%
2.5%
3.0%
3.5%
4.0%
5%
49.50
55.45
63.54
75.22
93.53
6%
39.66
43.27
47.90
54.03
62.53
7%
32.82
35.19
38.10
41.75
46.48
8%
27.80
29.44
31.38
33.74
36.66
9%
23.97
25.14
26.51
28.12
30.05
Implied Price
Final Price
Implied Price
Weight
DCF Implied Price
$38.10
25.00%
Comparables Implied Price
$51.73
75.00%
Price Target
$48.32
Current Price
$52.49
Overvalued
(7.94%)
Portfolio Position
# of shares
Tall Firs
Svigals
350
40
Cost Basis/share
$34.87
$34.85
Current Price
$52.79
$52.79
Return
51.14%
51.48%
Note
› United Natural Foods reports 1st quarter earnings Nov 30
– Expected Revenue: $1.381 Bn
Recommendation
› Based upon my DCF & comparables analysis, I found
United Natural Food’s stock to be overvalued. Therefore, I
recommend a sell for both the Tall Firs and Svigals
portfolios.
Questions?