• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Daily Swing Trade Archive
    • Income Seeker
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

I Remain Skeptical About United Natural Foods

The combined company - with SUPERVALU - has not yet proven that it can deliver on earnings and synergies.
By JONATHAN HELLER
Jan 18, 2019 | 01:00 PM EST
Stocks quotes in this article: UNFI

The United Natural Foods (UNFI) story continues to unfold in interesting ways. Just one year ago shares were trading in the $50 range, but a move the company made in late July has weighed on it ever since. On July 26th, UNFI made a bid for SUPERVALU for $32.50/share, a 67% premium, which rescued SUPERVALU. That deal turned some heads at the time, if for no other reason than that UNFI was also assuming SUPERVALU's heavy debt load.

It's been all downhill since for UNFI, which fell below $10 in December, after reporting worse than expected third quarter earnings in September, and repeating that for fourth quarter results released in early December.

I did name UNFI as a potential tax-loss selling recovery candidate for 2019, but the path the stock is taking became downright interesting earlier this week. On Wednesday, UNFI rose 28% on heavy volume, eclipsing $15 for the first time since early December. The catalyst for that move was a very detailed Investor Day presentation given by the company that afternoon that resulted in a trading halt.

The big takeaways, and probably what got investors exited, were company earnings guidance for 2019 (earnings per share of $1.69-$1.89, above the $1.65 consensus), and a look ahead to 2022, where the company projected revenue in the $27- $27.5 billion range, with adjusted EBITDA of $875- $925 million.

The company also addressed what I, and I believe concerns other investors most about UNFI, that being the company's $4 billion in debt. While UNFI's market cap is just $648 million, debt pushes it's enterprise value to nearly $4.6 billion, a number that investor's need to be mindful of. To just look at the market cap in this case, given the large level of debt, is shortsighted.

UNFI did address the debt in its presentation, and suggested that it could de-leverage (defined in this case as face value of debt/adjusted EBITDA) from 5.1X now to 2.9X in 2022, with a target of between 2X and 2.5X. The company also reiterated the fact that most of its debt matures in 2023-2025.

Now UNFI has to deliver on the de-levering (pun intended), which is no small feat, and will have to meet or exceed earnings expectations in order to restore investor confidence.

UNFI's Wednesday uptick, however, was very-short-lived. On Thursday, shares gave back 18%, also on heavy volume, erasing much of Thursday's gain. The markets giveth and the markets taketh away, and remain skeptical about UNFI, as do I.

Consensus estimates for next year put the forward price earnings ratio at less than 7, which is very compelling. However, the combined company has not yet proven that it can deliver on earnings and synergies, and that pesky $4 billion in debt remains the elephant in the room.

I may nibble on this one at some point, but have not been able to bring myself to take the UNFI debt plunge just yet.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jonathan Heller had no position in the securities mentioned.

TAGS: Earnings | Investing | Markets | Stocks | Trading | Food & Staples Retail | Food & Drink

More from Investing

HP Enterprise Is Still Finding it Hard to Grow Revenue - Tech Check

Eric Jhonsa
Feb 21, 2019 7:38 PM EST

The IT hardware giant beat EPS estimates with the help of margin growth and buybacks. But revenue fell short amid lower server and IT services sales.

I Like the Way Individual Charts Are Developing

James "Rev Shark" DePorre
Feb 21, 2019 4:36 PM EST

The weakness is actually a positive from a technical standpoint, but there is no rush to act at this point.

Here's How to Trade Inseego

Timothy Collins
Feb 21, 2019 3:40 PM EST

Inseego is an under-the-radar 5G play that is garnering a lot of attention.

Boston Beer Is Not a Poor Man's Stock

Dave Butler
Feb 21, 2019 3:10 PM EST

Boston Beer is an expensive stock despite the company's solid fourth-quarter earnings.

Random Gleanings: Nike, Tesla, Boeing and Wells Fargo

Jim Collins
Feb 21, 2019 2:54 PM EST

One wonders where Nike's cool factor will come from.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:48 AM EST BOB LANG

    Making a Case for Microsoft and Snap

    Mr Softy has long been a laggard and late to the p...
  • 11:27 AM EST BOB LANG

    Added Some Dexcom

    This company reports tonight, the chart/technicals...
  • 10:08 AM EST KEVIN CURRAN

    Nike Options Action Spikes

    Nike options volume is surging as speculators pi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2019 TheStreet, Inc., 14 Wall Street, 15th Fl, NY, NY 10005

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login