Please ensure Javascript is enabled for purposes of website accessibility

Why United Natural Foods Stock Soared This Week

By Jeremy Bowman – Sep 30, 2021 at 10:04PM

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

Shares of the natural and organic grocer popped on a strong earnings report.

What happened

Shares of United Natural Foods (UNFI 0.49%) were soaring this week after the natural foods wholesaler posted better-than-expected earnings in its fourth-quarter report; and it issued strong guidance for the current fiscal year. A number of Wall Street analysts also responded favorably to the report, hiking their price targets on the wholesale distributor stock.

As of the market close on Thursday, United Natural Foods, also known as UNFI, was up 30.7%.

The produce section in a supermarket.

Image source: Getty Images.

So what

UNFI actually missed top-line estimates in the quarter, with revenue falling 0.5% to $6.74 billion as it lapped a pandemic-fueled surge in the quarter a year ago. On a two-year stacked basis, revenue was up 7.5%, but that was still short of estimates at $6.85 billion.

However, what really impressed investors was the growth in the bottom line, which came even as food consumption returned to more normal patterns with restaurants recovering from the hit a year ago. Adjusted earnings per share (EPS) in the quarter increased from $1.06 to $1.18, easily beating the analyst consensus at $0.80.

United Natural Foods, which is Whole Foods' biggest supplier, also offered solid guidance for the new fiscal year, calling for adjusted EPS of $3.90 to $4.20, or the equivalent of 4% growth in the midpoint, which shows the last year wasn't a pandemic fluke. That was well ahead of the analyst consensus at $3.38.

After the stock soared 24% on Tuesday, it bounced again on Wednesday, gaining 8% on bullish analyst chatter. One analyst noted that sales to Whole Foods grew by 12%, showing UNFI's most important relationship getting stronger.

Now what

Shares pulled back 4.8% on Thursday, as the broad market fell amid concerns about rising interest rates and inflation concerns. However, as a wholesaler, United Natural Foods would likely be unaffected by inflation as it would just pass those costs on to customers. In fact, inflation can even be good for wholesalers like UNFI if it can use the price increases to capture higher margins.

The stock has quietly tripled over the last year and still looks cheap at a price-to-earnings ratio of just 12 based on fiscal 2022 earnings. Though it operates in a slow-growth industry, the company has been aggressive with acquisitions recently, and could continue to grow that way.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

United Natural Foods Stock Quote
United Natural Foods
UNFI
$38.70 (0.49%) $0.19

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

Related Articles

Premium Investing Services

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