William L. Moore
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Learn Why Morgan Stanley Has No Faith in United Natural Foods

United Natural Foods, Inc. faces top-line headwinds across its business, and its outlook is more challenged than the market appreciates, Morgan Stanley's Vincent Sinisi said while downgrading the organic retailer to Underweight from Equal Weight.

Looking Forward

"UNFI faces top line headwinds across its business that we believe are unlikely to abate," Sinisi wrote in a note to clients.

"UNFI's core natural/organic packaged food distribution business faces pressure as segment growth shifts more to 'fresh' offerings. At WholeFoods (Whole Foods Market, Inc. WFM), UNFI's largest customer (34 percent of sales), we forecast ~5 percent average sales growth in '16e–'19e, down from ~13 percent on average from '06–'15," Sinisi noted.

"For Independent Natural Retailers (32 percent of sales), competitive pressure from larger chains is unlikely to subside. For Conventional Supermarkets (26 percent of sales), a lost 5 percent customer pressures the segment outlook, and continued self-distribution risk remains," the analyst added.