The organic food business is still booming. Over the past nine years, these sales have notched double-digit growth and outpaced low-cost conventional foods. And demand isn’t slowing. United Natural Foods (UNFI), the leading organic food distributor, is profiting handsomely. The company distributes more than 60,000 products to 23,000 customer locations.
Revenues have grown 14 percent annually over 10 years. In the fiscal third quarter they rose 22 percent to $218.3 billion versus $985.7 billion last year. Net income climbed 19.9 percent. United Natural’s conventional supermarket business has more strong growth ahead, say analysts.
But even this winning strategy has a downside. United Natural is the main distributor for Whole Foods (WFM) and thus is intertwined with the grocery chain’s growth. Distribution is a low-margin business where profits can get squeezed, especially by supermarkets.
Still, United Natural Foods is shoring up both its business and margins. One example: The recent sale of its non-food lines to focus solely on food.
Soaring stock price
United Natural’s stock price has more than tripled since 2009. Of the 16 analysts listed on Thomson/First Call that follow the company, three have strong buy recommendations and three have buys, with nine holds and one underperform.
Citigroup analysts have a buy rating on United Natural Foods, and recently raised the target price to $52.
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