United Natural Foods, Inc. Covering Analyst: Matthew Miller

Investment Thesis ›United Natural Foods has experienced significant growth ›Market has priced in expected growth ›Currently United Natural Food’s stock is overvalued

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

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 PriceWeight EV/Revenue % EV/Gross Profit % EV/EBIT % EV/EBITDA % EV/(EBITDA-Capex) % P/E % Price Target $51.73 Current Price 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

Revenue Mix Over Time

Percent of Revenue by Segment 2018

Whole Foods Market ›New stores opened in 2012 –25 ›In development –79 ›United Natural Foods primary supplier in all regions –Under contract through 2020

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 382.0%2.5%3.0%3.5%4.0% Adjusted Beta

Sensitivity Analysis of Market Risk Premium Implied Price Terminal Growth Rate 382.0%2.5%3.0%3.5%4.0% Market Risk Premium 5% % % % %

Implied Price Final Price Implied PriceWeight DCF Implied Price$ % Comparables Implied Price$ % Price Target $48.32 Current Price $52.49 Overvalued (7.94%)

Portfolio Position # of sharesCost Basis/shareCurrent PriceReturn Tall Firs350$34.87$ % Svigals40$34.85$ %

Note ›United Natural Foods reports 1 st 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?