On Thursday, United Natural Foods Inc. (NYSE:UNFI) saw its price target increased to $16.00 from $15.00 by CFRA, while the firm retained a Hold rating on the stock. The new stock price target is based on a 5.0x EV/EBITDA multiple applied to the adjusted EBITDA forecast for fiscal year ending July 2025, which has been revised upward to $583 million from the previous estimate of $513 million.
The upgrade in the price target follows United Natural Foods' reported third-quarter sales of $7,498 million, which remained flat year-over-year but met consensus expectations. Notably, Whole Foods emerged as the only segment exhibiting growth, with a 5% year-over-year increase, while sales from independent grocers, other chains, and UNFI's own retail business experienced declines.
Despite a year-over-year drop of $29 million in adjusted EBITDA for the quarter, amounting to $130 million, the company indicated that the figure would have seen an approximate $4 million increase if not for incentive compensation expenses. This detail underscores the positive effects of United Natural Foods' cost savings initiatives.
In addition to the revised earnings per share (EPS) estimates for fiscal years 2024 and 2025, United Natural Foods has updated its adjusted EPS and adjusted EBITDA outlook for FY 2024. Furthermore, the company has projected approximately $100 million in free cash flow (FCF) for FY 2025, which it plans to use to reduce its leverage ratio, currently at 4.6x.
The company is also focusing on its higher-margin services business to fuel growth. Although this segment is relatively small, it has been recognized as an important contributor to profits. United Natural Foods is leaning on this sector to bolster its financial performance going forward.
In other recent news, United Natural Foods Inc. (UNFI) has seen a series of developments that are of interest to investors. The company recently reported a stable third-quarter performance, with revenues meeting expectations and earnings surpassing them. As a result of improved profitability, Roth/MKM raised the price target for UNFI from $13.00 to $14.00, while maintaining a Neutral stock rating.
Furthermore, UNFI has announced an extension of its partnership with Whole Foods until 2032, demonstrating a commitment to strategic growth. The company also highlighted plans to generate $100 million in free cash flow in the next fiscal year and reduce net debt, having already reduced it by $30 million in the third quarter.
In terms of future plans, UNFI is developing a new multiyear strategic plan set to commence in fiscal 2025, focusing on reallocating resources to enhance customer and supplier success. Lastly, despite challenges such as decreased inflation and a repositioning of its retail strategy, the company maintains its fiscal 2024 sales outlook and slightly raises the midpoint of adjusted EBITDA and adjusted EPS ranges.
InvestingPro Insights
United Natural Foods Inc. (UNFI) has been navigating a challenging market with a strategic approach to its financial health. According to InvestingPro data, UNFI has a market capitalization of $909.3 million and is trading at a low revenue valuation multiple, with a Price / Book ratio of just 0.47 as of the last twelve months leading up to Q3 2024. This suggests that the stock may be undervalued relative to its assets. The company's revenue during this period stood at $30.24 billion, representing a modest year-over-year growth of 0.38%.
InvestingPro Tips highlight that UNFI operates with a significant debt burden, which could be a concern for investors. Still, management's aggressive share buyback initiative indicates confidence in the company's value proposition.
Moreover, recent performance metrics show a significant return over the last week, with a price total return of 14.04%, and an even stronger return over the last month at 38.29%. These returns reflect investor sentiment and market reactions to the company's strategic initiatives and earnings reports.
For investors looking to delve deeper into United Natural Foods' financials and strategic outlook, there are additional InvestingPro Tips available. These tips provide a comprehensive analysis that could be critical in making informed investment decisions. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where you can find a total of 14 tips for UNFI to help guide your investment strategy.
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