Summary
- United Natural Foods demonstrates a venerable consumer defensive business with strong advantages and a promising growth trajectory.
- The stock is very undervalued, providing an excellent entry or addition point.
- The company is well-positioned for long-term success. The stock has just slipped through the cracks of this hot market for the time being.
Source: Reader's Digest
Amidst uncertain economic conditions, investors are increasingly drawn to consumer defense investments due to their stable industries, economic versatility, and attractive investment characteristics. An examination of the consumer goods segment reveals an often-overlooked industry stalwart, United Natural Foods Inc. (UNFI). UNFI offers a fantastic recession-resistant investment opportunity with an encouraging long-term outlook. This article will provide an in-depth examination of UNFI, substantiating my bullish investment thesis on the stock as well as discussing financials, valuation, and growth characteristics.
Business Advantages
With annual revenues exceeding $27 billion, UNFI is one of the largest North American and Canadian food wholesalers distributing more than 275,000 products to over 30,000 customer locations distributed across two continents. It displays distinct business advantages, including tremendous scale, operational efficiency, and substantial revenue diversification.
The company is the leading distributor of natural, organic, specialty, produce, conventional grocery, and retailer services with 55 food distribution centers all located within 85% of the US/Canadian population. UNFI's close proximity to its customers drives significant cost advantages, as product transportation expenses (the costliest aspect of the food delivery business) are minimized, helping streamline operations and drive bottom line revenue growth. This provides UNFI with a competitive pricing advantage, as the company is able to deliver wholesale food items more quickly and at a better price than competitors. The food business is an extremely cut-throat industry, with strained profit margins historically in the low single digits. However, large operational scale enables UNFI to drive cost efficiencies through large material purchasing, an efficient freight and logistics apparatus, and bargaining power with major food retailers. It can deliver wholesale food items to customers faster and at more competitive pricing.
