Canaccord Slashes United Natural Foods Price Target, But Still Says To Buy

In a report published Tuesday, Canaccord Genuity analyst Scott Van Winkle maintained a Buy rating on shares of United Natural Foods, Inc. (NASDAQ: UNFI) with a price target slashed to $71 from a previous $85 due to the "increasingly competitive" retail environment that is further challenging growth with more pressure.

"United Natural Foods is well positioned as the largest distribution of natural/organic foods and, while multi-channel, is over-indexed to the specialty retailer channels," Van Winkle wrote. "We continue to believe that a broadening opportunity due to the Tony's Fine Foods acquisition is a significant opportunity and the winning of $100 million in incremental business shipping in July illustrates the United Natural Foods – Tony's value proposition."

The analyst's comments follow United Natural Foods' third quarter results which were reported on Monday. The company earned $0.83 in the quarter, $0.02 short of expectations. Revenue of $2.11 billion was also short of the $2.14 billion expected.

United Natural Foods also guided its full year fiscal 2015 sales to a range of $8.15 billion to $8.19 billion (versus estimates of $8.27 billion) and expects to earn $2.84 to $2.88 per share for the full fiscal year (versus expectations of $2.92).

Van Winkle also noted that United Natural Foods' 6.7 percent reported internal growth fell short of his expectations of 8.2 percent. The declines were most evident in the independent and supermarket channels. However, the analyst stated that internal growth has accelerated 40 to 50 basis points thus far in the fourth quarter, with the improvement evident across channels and doesn't reflect about $100 million in incremental annual business from two new wins.

Commenting on the earnings per share guidance, the analyst argued that it reflects a "more pronounced" gross margin pressure in the core distribution business and anticipates channel shifts away from independents along with the ongoing pressures of currency.