United Natural Foods, Inc.Covering Analyst: Matthew Miller Email: Miller24@uoregon.edu

Business Overview

› Founded 1996 from merger of two regional distribution companies

› First nationwide distributor of natural, organic and specialty products

› First firm in U.S. certified by QAI

Scale of Operations

› U.S. & Canada

› 27,000 customers

› 26 distribution centers

› 65,000 SKU’s

› 4,800 suppliers

Products as Percent of Revenue

51%

23%

12%

6%

5%4%

Grocery/GeneralProduce/PerishablesFrozenBulk/Food ServicePersonal CareNutritional

Wholesale Industry

› Revenue projected to decline by 1.5% in 2013

› Low margins

› Competition from direct distribution

Natural & Organic Products Industry

› Growing at about 10% per year

› Expected to continue at 9% or higher

› Growth driven by demand for healthy and environmentally sustainable products

Comparables

› Growth

› Beta

› Margins

› Industry Similarities

› Market Capitalization

Comparables

› Whole Foods Market – 30%

› Costco – 30%

› Core-Mark – 20%

› Hain Celestial – 10%

› Sysco – 10%

Comparables Valuation

Multiple   Implied Price Weight

EV/Revenue   88.71 0.00%

EV/Gross Profit   64.89 0.00%

EV/EBIT 52.25 33.00%

EV/EBITDA   49.39 33.00%

EV/(EBITDA-Capex) 56.44 0.00%

P/E   53.50 34.00%

Price Target   $51.73

Current Price   52.49

Overvalued   (1.44%)

DCF Analysis

› Revenue Model– 4 segments

› Supernatural› Conventional› Natural Products Retailers› Other

› Revenue growth driven by continued demand for healthy, safe & sustainable products

Percent of Revenue by Segment 2012

35%

36%

24%

5%

Natural Product RetailersSupernatural (WFM)Conventional SupermarketsOther

Revenue Mix Over Time

2012A 2013E 2014E 2015E 2016E 2017E 2018E0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OtherConventionalSupernatural (WFM)Natural Products Retailers

Percent of Revenue by Segment 2018

28%

39%

28%

5%

Natural Products RetailersSupernatural (WFM)ConventionalOther

DCF Assumptions

› Cogs increasing as a % of revenue

› Gross margin decreasing

› SG & A decreasing as a % of revenue

› Operating margin expanding 9-12 bps

DCF Valuation

› Implied price of DCF: $38.10

› Overvalued by 27.42%

DCF Valuation

› Possible reasons– Beta– Market Risk Premium

Sensitivity Analysis of Beta

Implied Price

Terminal Growth Rate

38 2.0% 2.5% 3.0% 3.5% 4.0%

Adjusted Beta

0.65 45.49 50.40 56.93 66.00 79.49

0.75 38.25 41.58 45.81 51.35 58.92

0.85 32.82 35.19 38.10 41.75 46.48

0.95 28.61 30.35 32.43 34.98 38.14

1.05 25.25 26.56 28.11 29.95 32.18

Sensitivity Analysis of Market Risk Premium

Implied Price

Terminal Growth Rate

38 2.0% 2.5% 3.0% 3.5% 4.0%

Market Risk Premium

5% 49.50 55.45 63.54 75.22 93.53

6% 39.66 43.27 47.90 54.03 62.53

7% 32.82 35.19 38.10 41.75 46.48

8% 27.80 29.44 31.38 33.74 36.66

9% 23.97 25.14 26.51 28.12 30.05

Implied Price

Final Price   Implied Price Weight

DCF Implied Price $38.10 25.00%

Comparables Implied Price $51.73 75.00%

Price Target   $48.32

Current Price   $52.49

Overvalued   (7.94%)

Portfolio Position

  # of shares Cost Basis/share Current Price Return

Tall Firs 350 $34.87 $52.79 51.14%

Svigals 40 $34.85 $52.79 51.48%

Note

› United Natural Foods reports 1st quarter earnings Nov 30– Expected Revenue: $1.381 Bn

› Based upon my DCF & comparables analysis, I found United Natural Food’s stock to be overvalued. Therefore, I recommend a sell for both the Tall Firs and Svigals portfolios.

Recommendation

Questions?