Please ensure Javascript is enabled for purposes of website accessibility

Why United Natural Foods Stock Tumbled 10% Today

By Rich Smith - Jan 17, 2020 at 11:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The grocer's stock wilts under the heat of an analyst downgrade.

What happened

Natural and organic (and conventional, too) foods distributor United Natural Foods (UNFI 1.85%) is looking a bit beyond its sell-by date in Friday trading, having dropped more than 10% initially in response to a downgrade from analysts at investment bank Wells Fargo. As of 10 a.m. EST, the stock remains down 9.8%.

Why? This morning, Wells cut its rating on the foods distributor from "equal weight" to "underweight" (i.e., sell). The analyst's new price target -- $6 a share -- implies more than 33% downside to a stock that closed trading north of $9 a share yesterday.

Collection of wilted vegetables

Image source: Getty Images.

So what

So what is it that has Wells Fargo so upset with United Natural Foods today?

There's no mystery here. According to a report from our friends at, Wells believes that United Natural's ill-considered acquisition of grocery chain SUPERVALU was anything but a super value. On the contrary, it's becoming more and more apparent that "United Natural materially overpaid, and the transaction overall added significant risk" to SUPERVALU's new owner -- and significant debt besides.

On the one hand, yes, Wells admits that United Natural stock looks cheap at a projected 6.3 times forward earnings, and the addition of SUPERVALU's revenue stream has certainly goosed sales growth (up 110% year over year last quarter). On the other hand, though, all these new sales aren't translating into profits for United Natural, which booked a $384 million loss in its fiscal first quarter of 2020.

Now what

United Natural Foods reported that loss just a little over a month ago, which means investors will need to wait probably two more months before United Natural will have a chance to report anything more encouraging. Wells Fargo doesn't seem interested in waiting around for better news, however (or optimistic the news will be better).

Based on today's fall in share price, it doesn't seem other investors are very interested in waiting, either.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

United Natural Foods, Inc. Stock Quote
United Natural Foods, Inc.
$41.25 (1.85%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.