BMO Capital Downgrades United Natural Foods (UNFI) to Market Perform

BMO Capital downgraded United Natural Foods (NASDAQ: UNFI) from Outperform to Market Perform with a price target of $52.00 (from $71.00) to reflect customer loss.

Analyst Kelly Bania commented, "We are downgrading UNFI to Market Perform and cutting our target price to $52. Though the annual revenue associated with Albertsons was disclosed as ~$410 million, representing ~5% of UNFI’s annual revenue, we estimate that the impact to earnings is likely less than 5%. However, we’ve trimmed our F2016E EPS by ~5%, or down $0.17 to $2.98 down (from $3.15) assuming top-line growth of 3.3% (from 9%), reflecting the customer loss and a more conservative core growth rate of 8% (from 9%). While the stock’s (17%) reaction the day of the announcement and further weakness may appear like an overcorrection, we believe the announcement suggests increased risk to UNFI’s outlook. With a modest industry sales slowdown in recent quarters – albeit not, in our view, from an increase in products shifting directly but rather in-part from large, direct-sourcing customers (such as COST and KR) gaining market share – the risk of further increased competition from KeHE (the distributor that won the new Albertsons' contract) as well as regional suppliers remains a potential threat. Additionally, further industry supermarket consolidation (Ahold-Delhaize merger expected to close mid-2016) could result in ongoing volatility for natural and organic distributors."

For an analyst ratings summary and ratings history on United Natural Foods click here. For more ratings news on United Natural Foods click here.

Shares of United Natural Foods closed at $46.12 yesterday.

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