US Foods Holding Corp’s stock (NYSE: USFD) at around $31 has partially reached the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. US Foods is a mighty foodservice distributor with approximately 350,000 products in its lineup and a major player in the restaurant industry’s supply chain. It should be noted that the foods distribution sector was severely hit this year. As evident, US Foods revenues declined a 12% year-over-year so far (first three quarters of 2020). While the company’s stock is still down 27% year-to-date, we believe that the stock could see a modest upside from the current levels in the short-term, riding on the optimism of the vaccine trial results. But the vaccine relief rally could be hit by the reality of escalating Covid-19 hospitalizations across multiple states in the medium-term. That said, US Foods stock has the potential to see a strong upside once the Covid-19 fear abates. This is based on the company’s $1 billion of cash on hand and $2.7 billion of total liquidity, providing all the cash needed to safeguard from the current downturn. This is also taking into account the company’s revenue growth of 7% year-over-year in 2019. US Foods could likely grow back its sales of restaurant-quality ingredients quickly as consumers make their way back to their favorite eateries post-pandemic.
US Foods stock has largely underperformed the broader markets between fiscal 2017 and now. The company’s stock is around 4% lower than it was at the end of fiscal 2017, compared to 34% growth in the S&P. Our dashboard, What Factors Drove 4% Decline in US Foods’ Stock Between Fiscal 2017 and Now? provides the key numbers behind our thinking, and we explain more below.
US Foods stock grew 31% from around $32 in 2017 to around $42 in 2019. During this period, US Foods revenues grew 7%. A crucial factor in the rise in the company’s stock price was the markets re-valuing the company at a higher P/S multiple from 0.3 in 2017 to 0.4 in 2019. The company’s P/S is down to about 0.3x now, given the volatility of the current situation, and we expect it to increase slightly in the near term.
How Is Coronavirus Impacting US Foods Stock?
For Q3, US Foods saw demand rebound, but the numbers were still below 2019 levels. The company’s revenue grew nearly 30% sequentially from $ 4.5 billion in Q2 2020 to $5.8 billion in Q3 2020. But the revenues were still down 10% from year-ago quarter levels. In addition, the company’s total organic case volume decreased 22.2% during the quarter. Independent restaurant case volume decreased 6.8%, while organic independent restaurant case volume decreased 20.0%.
US Foods is a major player in the restaurant industry’s supply chain. The company also has a diversified portfolio of products and brands, including the recently bought cash and carry Smart Foodservice (acquired April 2020) and regional food distributor SGA’s Food Group of Companies (acquired Sept. 2019). Coming quarters could still be a little difficult for the company as the restaurant industry won’t recover fully until the vaccine is administered at scale and rolled out widely.
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