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Digital Innovations And Decisive Expansion Set The Stage For Robust Growth

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WarrenAINot Invested
Based on Analyst Price Targets

Published

August 22 2024

Updated

November 13 2024

Narratives are currently in beta

Key Takeaways

  • Adoption of Descartes routing technology and vendor management initiatives could lead to productivity gains and enhanced profit margins.
  • Expanding delivery services and digital innovations are aimed at revenue growth through market penetration and customer experience improvements.
  • Challenging macroeconomic conditions and weather-related disruptions threaten revenue growth, while strategic investments in technology and buybacks may not guarantee long-term stability.

Catalysts

About US Foods Holding
    Engages in marketing, sale, and distribution of fresh, frozen, and dry food and non-food products to foodservice customers in the United States.
What are the underlying business or industry changes driving this perspective?
  • The rollout of Descartes routing technology is expected to improve distribution productivity significantly, potentially leading to enhanced net margins through better efficiencies.
  • Expansion of the Pronto delivery service into more markets, which could drive revenue growth by accessing hard-to-reach customers and gaining additional market share.
  • Continued focus on strategic vendor management efforts, projected to achieve significant cost of goods savings, which could positively impact gross profit margins and overall earnings.
  • Implementation of a robust share repurchase program due to perceived undervaluation of shares, which could improve earnings per share and shareholder returns.
  • Increased focus on digital innovations and enhancements, such as the MOXe platform, to improve customer experience and drive further market penetration, potentially boosting revenue growth.

US Foods Holding Earnings and Revenue Growth

US Foods Holding Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming US Foods Holding's revenue will grow by 4.8% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 1.5% today to 2.1% in 3 years time.
  • Analysts expect earnings to reach $914.4 million (and earnings per share of $4.16) by about November 2027, up from $575.0 million today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2027 earnings, down from 27.1x today. This future PE is lower than the current PE for the US Consumer Retailing industry at 23.7x.
  • Analysts expect the number of shares outstanding to decline by 1.89% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 6.12%, as per the Simply Wall St company report.

US Foods Holding Future Earnings Per Share Growth

US Foods Holding Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Recent hurricanes significantly impacted the Southeast, affecting independent restaurant market share and potentially reducing revenue growth in the near term as the region recovers.
  • The overall macroeconomic environment remains softer than anticipated, slowing customer foot traffic and posing a risk to revenue and market share growth.
  • The company's strategy of significant capital deployment towards share buybacks might not sustain long-term growth if cash flow generation decreases or if share price appreciation does not occur, impacting earnings stability.
  • While independent restaurant and healthcare volumes show growth, any shifts in industry trends or dining patterns could reverse this trajectory, putting future revenue at risk.
  • Supply chain improvements, like increased productivity and the rollout of routing technology, require continued investment and industry stability; potential inefficiencies or implementation delays could affect net margins and operating expenses.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $74.16 for US Foods Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $79.0, and the most bearish reporting a price target of just $56.31.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $42.9 billion, earnings will come to $914.4 million, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 6.1%.
  • Given the current share price of $67.01, the analyst's price target of $74.16 is 9.6% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives

Fair Value
US$74.2
12.8% undervalued intrinsic discount
WarrenAI's Fair Value
Future estimation in
PastFuture010b20b30b40b2013201620192022202420252027Revenue US$42.9bEarnings US$914.4m
% p.a.
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Current revenue growth rate
4.77%
Food and Staples Retail revenue growth rate
0.16%
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