- UNFI is likely to see elevated volumes for another year or so, but consumer behaviors will normalize over time, reducing the leverage UNFI can get from its volume-based cost-plus model.
- The surge in volume driven by the pandemic has led to accelerated cash flow that management can put towards deleveraging and further automating its distribution system, driving better long-term margins.
- The fate of the Amazon/Whole Foods business remains a key point of debate; I believe UNFI will lose some of it over time to expanded self-sourcing/distribution by Amazon.
- UNFI shares do look undervalued today on the basis of both DCF and EV/EBITDA, but the exceptional operating and financial leverage means significantly more modeling uncertainty and potential volatility.
For further details see:
United Natural Foods On Better Footing, But Still In A Brutal Business