On Wednesday, UBS increased its price target on shares of United Natural Foods (NYSE:UNFI) from $16.00 to $21.00 while maintaining a Neutral rating. The decision came in response to the company's fourth-quarter results and its long-term guidance, which the firm believes sets a stable foundation for the stock's valuation.
The company's earnings per share (EPS) projections have been significantly revised upward. UBS now anticipates an EPS of $0.72 for the fiscal year 2025, up from the previous estimate of $0.28. For the fiscal year 2026, the EPS forecast has been raised to $1.98 from $0.60, and for the fiscal year 2027, the projection is now $2.37, up from $0.82.
The analyst from UBS noted that the updated guidance provided by United Natural Foods appears attainable and is likely to support the stock's multiple in the near term. This optimism is reflected in the revised earnings forecasts and the increased price target.
Alongside the price target adjustment, UBS also raised its 12-month forward EBITDA (earnings before interest, taxes, depreciation, and amortization) target for United Natural Foods to approximately $612 million. Despite the positive outlook and today's upward movement in the stock's price, the firm's valuation multiple remains unchanged at roughly 5 times.
In conclusion, UBS sees the risk and reward for United Natural Foods as balanced following the company's positive performance and the updated financial targets. The firm's stance suggests a cautious optimism, acknowledging the company's potential while also noting that the current stock price may already reflect the anticipated growth.
In other recent news, United Natural Foods (UNFI) has reported robust fourth-quarter results, with sales reaching $8.2 billion and an adjusted EBITDA of $143 million, a significant increase from the previous year's $93 million. The company has also outlined a strategic growth plan focusing on natural and specialty products and expects to generate approximately $100 million in free cash flow by fiscal 2025.
In a recent development, UNFI announced plans to optimize its distribution network, which includes the closure of two owned distribution centers. Despite a decline in retail sales due to consumer price sensitivity, UNFI's wholesale segment showed improving volumes and reduced inflation.
BTIG has maintained a neutral stance on UNFI's stock following the announcement of these results. While the firm acknowledged the company's return to positive volume growth and the introduction of a three-year financial plan, it also expressed caution, citing a history that tempers their optimism.
UNFI aims to reduce its net leverage to less than 2.5 turns by the end of fiscal 2027 and projects an adjusted EPS between $0.20 and $0.80 per share for fiscal 2025. These recent developments highlight UNFI's strategic direction towards sustained financial health and growth over the next three years.
InvestingPro Insights
Recent data from InvestingPro adds context to UBS's analysis of United Natural Foods (NYSE:UNFI). The company's market capitalization stands at $1.31 billion, with a revenue of $30.98 billion for the last twelve months as of Q4 2024. This substantial revenue base aligns with UBS's increased confidence in the company's guidance and potential for stable valuation.
InvestingPro Tips highlight that UNFI is trading at a low revenue valuation multiple, which could support UBS's view of a balanced risk-reward profile. Additionally, the stock has shown significant returns recently, with a 33.09% increase over the past week and a 45.14% gain over the last month. This strong performance coincides with UBS's decision to raise the price target.
However, investors should note that UNFI operates with a significant debt burden and suffers from weak gross profit margins, factors that may impact future performance. For a more comprehensive analysis, InvestingPro offers 16 additional tips for UNFI, providing deeper insights into the company's financial health and market position.
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