Are Natural Foods Growing in Your Portfolio?

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

United Natural Foods (NASDAQ: UNFI) is the leading distributor of natural and organic food products in the United States. With previous experience in food distribution, I can tell you that this company owns the natural space and there are no competitors with a fighting chance to overtake their market. This is because the main competitors, who are privately owned, are regional, while United Natural is national, enabled by their numerous distribution centers. 

United Natural Foods distributes into stores such as Whole Foods and The Fresh Market, and they make up large percentages of the sales for companies like Hain Celestial, Annie’s, and Amy’s. In fact, in a recent quarter, Hain Celestial actually noted that 18% of their revenue came from United Natural Foods. With the continued growth in Whole Foods, the Fresh Market, and other natural grocers, United Natural will benefit greatly. Furthermore, as a key supplier of Hain Celestial, Annie's, and other brands, United will continually grow in spaces in your everyday grocery store as well.

United Natural Foods also owns companies in natural and organic produce distribution, private label products, sports nutrition and supplements, importing and packaging, eCommerce, and their very own chain of retail stores. Produce has been a sensitive area as of late, mainly due to studies on the insecticides and chemicals used to speed up growth. United's products are guaranteed organic, preventing any further thoughts by the customer. All of these details are crucial, because there is a growing market of parents who raise their children strictly on all natural and organic products. In doing so, these mothers will shop at United's customers' stores, buy products distributed by United, purchase produce supplied by United, and may even be shopping in one of United's stores.

At the market close on Jan. 28, the stock is trading at $52.55. With earnings of $1.98, they are trading at 26.55 times earnings. United Natural Foods has been consistently meeting or exceeding analyst expectations, but with little pop in the stock afterwards. This takes the fun out of earnings beats, but the street may take notice, especially with the growth in the natural and organic food space. 2013 earnings are expected to be around $2.04-$2.30, but $2.40 is obtainable due to the increasing popularity in their products and the new clients they add every month.

United Natural is trading 14% below its 52 week high of $61.26, and a return to this level is likely. With the expectation of $2.40 earnings per share in 2013 and a fair multiple of 25, my $60 price target is set. This would represent a 14.18% gain from the current price. United Natural Foods is a STRONG BUY.

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JoeySolitro1 has a long position in United Natural Foods. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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