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MARKETS LIVE BLOG:

STOCKS SHED GAINS, TESLA SURGES DAY AFTER EARNINGS

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Here's Why United Natural is up More Than 40% in Six Months

Zacks Equity Research

United Natural Foods, Inc. UNFI has been benefiting from strength in its Supernatural unit for some time now. Moreover, the company’s focus on cost-reduction efforts and certain key strategic targets bodes well. Also, it has undertaken prudent acquisitions to widen its portfolio.

Moreover, analysts appear optimistic regarding the stock’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2020 earnings inched up by a couple of cents to $1.23 per share in the past 30 days.

Before discussing the company’s growth drivers, it is worth noting that United Natural recently announced that it has undertaken some concrete steps to offer bonus and protection to its employees as the world continues to strive against the coronavirus menace. Among other moves, the company’s full-time and part-time direct labor associates as well as drivers will be rewarded with a temporary State of Emergency Bonus of $2 per hour along with regular wages and overtime hours for time worked through Mar 31.

What’s Driving United Natural’s Growth?

United Natural’s Supernatural channel has been witnessing robust growth for a while. Net sales rose 10% year over year, which contributed about 19% to total sales in second-quarter fiscal 2020. This was backed by greater sales to existing stores as well as contributions from new locations. Further, management stated that it is optimistic about its prime delivery across a number of markets globally in this channel.Prior to this, sales in the Supernatural segment rose 8.2% year over year, contributing 18.5% to total sales in fiscal first quarter.



Further, United Natural is focused on cost-reduction efforts. In this regard, the company achieved cost-savings of around $70 million in fiscal 2019, which exceeded expectations. Moreover, its cost-reduction initiatives along with increased synergy realization have caused a 4% reduction in operating expense dollars prior to bad debt expenses during the second quarter.

Additionally, the company is committed toward certain strategic targets that include plans such as enhancing customer base, expanding the company’s broad line distribution channel and improving profitability. To this end, it is focusing on creating a sustainable and solution-based supply chain network. Also, management is on track with improving margins, cash flow and revenue streams.

Apart from these, the company has been undertaking various acquisitions over the years to expand its distribution network and customer base as well as boost long-term growth. In this regard, United Natural completed the buyout of SUPERVALU in October 2018. The enhanced scale of the combined entities aided United Natural’s performance. Moreover, the merger has provided better competing grounds to the company in the grocery space by augmenting offerings. We note that management has successfully completed the integration of SUPERVALU conventional business.

Some other notable acquisitions of the company include Haddon House (in May 2016), Gourmet Guru (in August 2016), Nor-Cal Produce, Inc (in 2016), Tony’s Fine Foods (in 2014) and Trudeau Distributing Company (in 2013) among others.

We note that this Zacks Rank #2 (Buy) stock has rallied 43.3% in the past six months against the industry’s decline of 7.3%.

Other Solid Food Stocks

Campbell Soup Company CPB, with a Zacks Rank #2, has a long-term earnings growth rate of 7.2%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conagra Brands Inc. CAG, with a Zacks Rank #2, has a long-term earnings growth rate of 7%.

General Mills, Inc. GIS, with a Zacks Rank #2, has a long-term earnings growth rate of 7%.

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Conagra Brands Inc. (CAG) : Free Stock Analysis Report
 
Campbell Soup Company (CPB) : Free Stock Analysis Report
 
General Mills, Inc. (GIS) : Free Stock Analysis Report
 
United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
 
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