US Foods Gets Buy Rating From Citi, Sees Robust Runway For Future Growth

Citi’s Gregory R. Badishkanian believes US Foods Holding Corp (NYSE: USFD) “appears well positioned for future market share gains, especially in the higher margin independent category that should help drive improved operating performance and enable balance sheet leverage to decline in the coming quarters.”

Badishkanian initiated coverage of the company with a Buy rating and price target of $30.

Multiple Positives

The analyst pointed out that US Foods was the second-largest food service distributor in the country, with annual sales of over $23 billion and approximately 9 percent share of the market.

“The domestic distributor market remains relatively fragmented, with more than 15,000 smaller, local/regional distributors controlling approximately 42% of the market,” according to the Citi report.

Badishkanian believes the company has a robust runway for future growth, both via acquisitions and organically, despite the mostly modest growth outlook for the foodservice industry as a whole, which is expected to grow about 2.4 percent a year through 2020.

Longer Term Outlook

“Over the longterm, the broader restaurant industry appears poised to benefit from many factors, including continued increases in food away from home spending and demographic tailwinds,” the analyst noted.

Although US Foods has a higher leverage than its peers, the foodservice industry continues to be relatively defensive, with leverage expected to decline in the coming quarters.

Badishkanian believes that the company has a strong management team that has wide experience in operations, planning and M&A, and that US Food’s strategic plan would continue to drive robust operating results going forward.