United Natural Foods Almost Unnatural Potential

– but then again they used to say the same about me

UNFI : NASDAQ : US$64.60
BUY 
Target: US$83.00

COMPANY DESCRIPTION:
United Natural Foods is the leading distributor of natural
and organic foods in North America.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Health, Wellness and Lifestyle
EXPECT A HEALTHY Q4 AND
OUTLOOK INCORPORATING TONY’S;MAINTAIN BUY, $83 TARGET
Investment recommendation
The robust natural/organic category growth, coupled with UNFI’s
position as the leading distributor in the sector, should deliver
strong sales/earnings growth.
Investment highlights
 Expect Q4 report on Sept. 17 to be a positive catalyst with
consistent revenue growth (adjusted for extra week last year)
and earnings in line despite Tony’s Fine Foods transaction
costs and new facility ramp-up. We anticipate F2015
guidance will be above consensus.
 We are increasingly confident in the underlying strength
within natural and organic foods as well as the accretive
potential of the recently acquired Tony’s Fine Foods. We
expect Tony’s detail and commentary on the Q4 call to be a
positive catalyst.
 We view UNFI’s multi-channel exposure as a strength in an
environment where supermarket share of natural/organic is
rising.
Valuation
Shares trade at 22x C2015E EPS and 11x EBITDA. We maintain
our $83 target, predicated on 24x preliminary C2016E earnings.

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The Chefs’ Warehouse

English: A picture of myself (Photo credit: Wikipedia)

CHEF : NASDAQ : US$20.12
BUY 
Target: US$24.00
COMPANY DESCRIPTION:
The Chefs’ Warehouse was founded in 1985 and is a premier distributor of specialty food products with a focus on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores in the United States.

Investment recommendation
We believe that CHEF has a considerable geographic growth and industry consolidation opportunity within the specialty food service industry that should deliver double-digit growth.
Investment highlights
 Initiating 2015 revenue and EPS estimates of $787M and $1.20, assuming a modest 5% contribution from acquisitions and 5% internal growth. Raising price target to $24 from $20, reflecting strengthening valuations among peers.
 We anticipate that Q2 results, when reported over the coming weeks, will illustrate a continued improvement in customer demand and product inflation trends.
 We continue to believe that CHEF has a robust opportunity to consolidate a highly fragmented specialty food distribution sector and believe its positioning between both a fragmented customer and supplier base is a position of strength.
Valuation
At 19x next year’s earnings and 10x EBITDA, the shares appear reasonably valued vs. peers. Our target assumes a 20 multiple applied to our new F2015 EPS estimate.

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Boulder Brands : Tasty!

Several gluten-free beers from Germany. Español: Algunas cervezas de Alemania y sing gluten. (Photo credit: Wikipedia)

BDBD : NASDAQ : US$13.67
BUY 
Target: US$15.00

COMPANY DESCRIPTION:
Boulder Brands (formerly Smart Balance) is a rapidly growing brand of healthy foods focused on the buttery spreads category (40% of sales), as well as peanut butter, oils, popcorn and mayonnaise and gluten free foods (over 40% of sales). The company owns the number two brand in the spreads category and the top two gluten free brands (Udi’s and Glutino). The spreads utilized a patented blend of fats and oils to make a product lower in cholesterol

ANNOUNCEMENTS WORTH $10M OF PROFIT; REITERATE BUY, RAISING TARGET TO $15 FROM $13
Investment recommendation
We continue to believe that Boulder Brands has a favorable financial model and platform for growth in the healthier foods arena that is highlighted by its rising exposure to gluten-free.
Investment highlights
 Boulder announced the completion of its refinancing, a small acquisition, and a meaningful strategic development with the licensing of its Smart Balance milk business.
 The 225-basis-point improvement in its effective interest rate equates to nearly a $0.05 annualized EPS savings, which is in line with our expectations. Given we estimated $4M to $5M of losses in milk this year, the milk licensing deal is also worth about $5M of profit swing.
 We are raising our 2013 EPS estimate to $0.28 from $0.27 and our 2014 EPS estimate to $0.46 from $0.42 to reflect the lower interest rates (we had previously assumed milk would reach break-even in 2014).
Valuation
Raising price target to $15 from $13 to reflect higher forecasts and an increase in our EV/EBITDA target to 13x from 12x.

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Boulder Brands

Several gluten-free beers from Germany. Español: Algunas cervezas de Alemania y sing gluten. (Photo credit: Wikipedia)

BDBD : NASDAQ : US$11.85
BUY 
Target: US$13.00

COMPANY DESCRIPTION:
Boulder Brands (formerly Smart Balance) is a rapidly growing brand of healthy foods focused on the buttery spreads category (40% of sales), as well as peanut butter, oils, popcorn and mayonnaise and gluten free foods (over 40% of sales). The company owns the number two brand in the spreads category and the top two gluten free brands (Udi’s and Glutino). The spreads utilized a patented blend of fats and oils to make a product lower in cholesterol.
All amounts in US$ unless otherwise noted

Investment recommendation
We continue to believe that Boulder Brands has a favorable financial model and platform for growth in the healthier foods arena that is highlighted by its rising exposure to gluten-free.
Investment highlights
 Gluten-free momentum appears to continue, and we expect BDBD will be able to lap last year’s acceleration with
consistently strong growth that should exceed our forecasts.
 Potential new credit facility should deliver a lower interest rate with greater capacity. We view the potential new credit facility as simply an opportunity to reduce interest, while a lower financing cost adds to the already highly attractive characteristics of the Glutino and Udi’s acquisitions.
 While preliminary, our math suggests $0.02 to $0.05 of annual EPS accretion from a new credit facility.
Valuation
While the PE is 28x F2014E EPS, at under 11x EBITDA, we believe the valuation remains very reasonable for an on-trend growth business. The valuation is in line to modestly discounted  versus its natural and organic peers exhibiting a similar growth profile. We reiterate our $13 price target.

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