Is United Natural Foods undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of United Natural Foods to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
Amount off the current price United Natural Foods is available for.
Share price is $42.03 vs Future cash flow value of $64.52
Current Discount Checks
For United Natural Foods to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
- United Natural Foods's share price is below the future cash flow value, and at a significant discount (> 20%).
- United Natural Foods's share price is below the future cash flow value, but not at a substantial discount (< 40%).
We assess United Natural Foods's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Food and Staples Retailing industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Food and Staples Retailing industry average (and greater than 0)? (1 check)
United Natural Foods has a total score of 4/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (4.75%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for United Natural Foods is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
||Extrapolated @ (11.36%)
Discounted (@ 8.5%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $231 × (1 + 2.3%) ÷ (8.47% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($3,266 / 51)
Value per share:
Current discount (share price of $42.03): 35%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.47% = 2.33% + (0.8 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.683 = 0.606 (1 + (1- 30%) (18.12%))
Levered Beta used in calculation = 0.8
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is United Natural Foods expected to perform in the next 1 to 3 years based on estimates from 15 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is United Natural Foods expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are United Natural Foods's annual earnings growth expected to exceed 3.4% over the next 3 years?
- After 1 year
- After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- United Natural Foods is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Food and Staples Retailing industry average.
- A decline in United Natural Foods's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess United Natural Foods's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
United Natural Foods has a total score of 2/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has United Natural Foods performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare United Natural Foods's growth in the last year to its industry (Food and Staples Retailing).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- United Natural Foods's earnings growth has not matched the industry average in the past year.
- United Natural Foods's 1 year earnings growth is less than its 5 year annual average (3% vs 8.1%).
- United Natural Foods has improved earnings in the past 5 years.
United Natural Foods's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Poor return on shareholders funds (ROE) last year.
- United Natural Foods performed worse than the Food and Staples Retailing industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
Past performance checks
We assess United Natural Foods's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Food and Staples Retailing industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
United Natural Foods has a total score of 2/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is United Natural Foods's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up United Natural Foods's finances.
The net worth of a company is the difference between its assets and liabilities.
- United Natural Foods is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- United Natural Foods's cash and other short term assets cover its long term commitments.
This treemap shows a more detailed breakdown of United Natural Foods's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- High level of stock/ inventory/ unsold assets.
- Total debt is covered by short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (23%) compared to net worth is satisfactory (less than 40%).
- The level of debt compared to net worth has increased over the past 5 years (12% vs 23% today).
- Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
- Interest on debt is well covered by earnings (13.9x coverage).
Financial health checks
We assess United Natural Foods's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
United Natural Foods has a total score of 5/6, see the detailed checks below.
What is United Natural Foods's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from United Natural Foods dividends.
If you bought $2,000 of United Natural Foods shares you are expected to receive $0 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying below low risk savings rate. (2.25%)
- Paying below the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Not paying a notable dividend.
- Not paying a notable dividend.
Current Payout to shareholders
What portion of United Natural Foods's earnings are paid to the shareholders as a dividend.
- Not paying a notable dividend.
Future Payout to shareholders
- Insufficient estimate data to determine if a dividend will be paid in 3 years.
Income/ dividend checks
We assess United Natural Foods's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can United Natural Foods afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
United Natural Foods has a total score of 0/6, see the detailed checks below.
What is the CEO of United Natural Foods's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Steven L. Spinner, also known as Steve, has been the Chief Executive Officer and President of United Natural Foods, Inc. (UNFI) since September 2008. Mr. Spinner served as the President of Performance Food Group Co., from May 25, 2005 to October 2006. He served as Chief Executive Officer of Performance Food Group Co. from October 1, 2006 to June 2008 and its Chief Operating Officer from May 25, 2005 to September 2006 and Senior Vice President from February 2002 to May 2005. He served as Chief Executive Officer for Broadline Segment of Performance Food Group Co., from February 2002 to May 2005 and also served as President of its Broadline Distribution from October 2001 to June 2005 and Northeast Regional President of its broadline segment from November 2000 to October 2001. He served as Broadline Regional President of Performance Food Group Co., from October 2000 to August 2001. Mr. Spinner served as President of AFI Food Service Distributors Inc. (AFI), a wholly-owned subsidiary of Performance Food Group Co., from October 1997 to October 2001 and Principle from 1985 to October 1997. From 1989 to October 1997, Mr. Spinner served as Vice President of AFI Food service. He has been Chairman of the Board of United Natural Foods, Inc. since December 15, 2016 and has been its Director since September 2008. He has been an Independent Director and Lead Independent Director of ArcBest Corporation (alternate name Arkansas Best Corporation) since July 21, 2011 and April 2016 respectively. He served as a Director of Performance Food Group Co., LLC from October 2006 to May 2008.
- CEO's compensation has been consistent with company performance over the past year.
- CEO's compensation is higher than average for a company of this size and profit level.
Management Team Tenure
Average tenure of the United Natural Foods management team:
- The tenure for the United Natural Foods management team is about average.
Chief Financial Officer
Chief Operating Officer
Chief Administrative & Information Officer and Senior Vice President
Chief Compliance Officer
Director of Investor Relations and Corporate Strategy
Board of Directors Tenure
Average tenure of the United Natural Foods board of directors:
- The tenure for the United Natural Foods board of directors is about average.
Board of Directors
Lead Independent Director
Recent Insider Trading
Who owns this company?
We assess United Natural Foods's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
United Natural Foods has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
United Natural Foods, Inc., together with its subsidiaries, distributes and retails natural, organic, and specialty foods and non-food products in the United States and Canada. The company operates through three divisions: Wholesale, Retail, and Manufacturing and Branded Products. The Wholesale division offers grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements and sports nutrition, bulk and foodservice products, and personal care products. This segment also distributes an array of specialty protein, cheese, deli, food service, and bakery goods; and organic and conventional produce and non-produce perishable items, and natural and organic specialty and gourmet ethnic products, as well as vitamins, minerals, and supplements. The Retail division operates 13 natural products retail stores primarily in Florida. The Manufacturing and Branded Products division is involved in importing, roasting, packaging, and distributing nuts, dried fruits, seeds, trail mixes, granola, natural and organic snack items, and confections. This segment also provides Blue Marble Brands products on wholesale basis through third-party distributors in organic, natural, and specialty food brands, as well as directly to retailers; and Field Day brand products primarily to customers in its independent natural products retailer channel. The company serves independently owned natural products retailers, supernatural chains, conventional supermarkets, and mass market chains, as well as foodservice, e-commerce, and international customers outside Canada. United Natural Foods, Inc. was founded in 1976 and is headquartered in Providence, Rhode Island.
|Name:||United Natural Foods, Inc.|
|Market Cap:||$2,128 million|
313 Iron Horse Way, Providence, 02908, United States
United Natural Foods employees.
|Sector:||Food and Staples Retailing|