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Natural food distributor has solid earnings growth and is cheap

Consumers’ expanding appetite for healthy, environmentally friendly food is giving a boost to Canadian farms.

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Rhode Island-based United Natural Foods Inc. is the largest publicly-traded wholesale distributor to the natural, organic and specialty food industry in the United States and Canada. It supplies to over 27,000 customer locations across the U.S. and Canada, serving retailers that include conventional supermarket chains, natural product superstores, independent retail operators and the food service channel. It has a $3.6-billion (U.S.) market cap.

UNFI has increased EPS in all but one year of the past decade, which the Warren Buffett based model likes.

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The company has grown earnings at a solid 13-per-cent pace over the long term (using an average of the 3-, 4-, and 5-year EPS growth rates), and that earnings growth has been driven by revenue growth (15 per cent, using the same standard) - not one-time factors - which the Martin Zweig based model likes. The Zweig model also likes that EPS growth has been accelerating: 21.7 per cent last quarter, which was up from an average of 20.9 per cent for previous three quarters, which was up from 13 per cent over long term.

The stock gets strong interest from the James O'Shaughnessy based growth model, in part because it has increased EPS in each year of the past half-decade. The O'Shaughnessy model also likes its 0.55 price/sales ratio and 76 relative strength.

Debt/equity ratio (24 per cent) is far below food processing industry avg of 149 per cent, another reason the Zweig model has some interest.

The company has a solid 2.8 current ratio, which the Benjamin Graham-based model likes, and it has more net current assets ($818-million) than long term debt ($273-million), which also impresses the Graham model.

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