BMO Capital Markets has adjusted its outlook on United Natural Foods , Inc. (NYSE: NYSE:UNFI), increasing the stock's price target to $23.00, up from the previous $14.00, while keeping a Market Perform rating on the shares.
The decision follows the company's fourth-quarter earnings for fiscal year 2024, which revealed an EBITDA that surpassed expectations and reached the high end of the company's guidance. Despite this positive performance, EBITDA still saw a double-digit decline for the second consecutive year.
United Natural Foods provided guidance for fiscal year 2025, indicating stable to modest growth. The forecast has seemingly reassured investors. Additionally, the company has laid out a long-term strategy that aims for high single-digit percentage annual EBITDA growth, even with flat sales projected in the upcoming years. This plan has implications for the company's valuation prospects and is accompanied by potential risks to gross margins, according to BMO Capital.
The firm's commentary acknowledged the company's financial achievements, but also pointed out the challenges ahead. "FY25 guidance points to stable to modest growth, which likely gave investors comfort and management formalized a long-term plan calling for HSD% annual EBITDA growth on FLAT Sales in coming years, which likely limits valuation expansion and still carries GM% risks, in our view," the analyst said. "We reiterate our Market Perform rating yet raise our target price to $23."
The updated price target of $23.00 reflects a significant increase from the earlier $14.00 target, indicating a change in BMO Capital's valuation of United Natural Foods.
Despite this, the Market Perform rating suggests that the firm maintains a neutral stance on the stock's prospects, balancing the recent financial performance against the potential challenges outlined in the long-term plan.
In other recent news, United Natural Foods reported strong fourth-quarter results, with sales reaching $8.2 billion and an adjusted EBITDA of $143 million, marking an increase from the previous year's $93 million.
The company also outlined a strategic growth plan focusing on natural and specialty products, expecting to generate approximately $100 million in free cash flow in fiscal 2025. In an effort to optimize its distribution network, UNFI announced the closure of two owned distribution centers.
UBS raised its price target on UNFI from $16.00 to $21.00, maintaining a Neutral rating, following the company's positive quarterly results and long-term guidance. BTIG also maintained a neutral stance on UNFI's stock, acknowledging the company's return to positive volume growth and the introduction of a three-year financial plan.
Recent developments have seen UNFI commit to reducing its net leverage to less than 2.5 turns by the end of fiscal 2027, and projecting an adjusted EPS between $0.20 and $0.80 per share for fiscal 2025. The company's strategic direction aims to ensure sustained financial health and growth over the next three years.
InvestingPro Insights
United Natural Foods' recent financial performance and BMO Capital's updated outlook are complemented by several key insights from InvestingPro. The company's stock has shown remarkable strength recently, with InvestingPro data indicating a 33.09% return over the past week and a 45.14% return over the last month. This aligns with the positive market reaction to UNFI's Q4 earnings and future guidance.
InvestingPro Tips highlight that UNFI is "trading near its 52-week high" and has experienced a "significant return over the last week," which corroborates the stock's recent momentum following the earnings report. Additionally, the tip suggesting that "net income is expected to grow this year" supports the company's positive outlook for fiscal year 2025.
However, investors should note that UNFI "operates with a significant debt burden" and "suffers from weak gross profit margins," which could impact the company's ability to achieve its long-term EBITDA growth targets. These factors may contribute to BMO Capital's decision to maintain a Market Perform rating despite raising the price target.
For a more comprehensive analysis, InvestingPro offers 16 additional tips on UNFI, providing investors with a deeper understanding of the company's financial health and market position.
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