U.S. Foods Holding Corporation (NYSE:USFD) - Buy Recommendation - $25.75
The 40-day quiet period on U.S. Foods Holding Corporation will come to an end on July 5, 2016, allowing the firm's IPO underwriters to publish reports, recommendations, and analyses for the first time since its IPO.
We see a new buying opportunity for the growing firm and newly public company.
Powerful Underwriters Could Boost Share Price at Quiet Period Expiration
USFD's powerful IPO underwriters could release a flood of good reports, beginning with the conclusion of the quiet period. Goldman Sachs, JP Morgan Securities, KKR Capital Markets, Morgan Stanley, BMO Capital Markets, BofA Merrill Lynch, Citigroup Global Markets, Credit Suisse Securities, Deutsche Bank Securities, Guggenheim Securities, ING Financial Markets, Natixis Securities Americas, RABO Securities, and Wells Fargo Securities round out the team.
Our firm's research shows a significant potential for above-market returns in the five days prior to and two days after the conclusion of many companies' quiet periods.
A Foodservice Distributor in the United States With Leading Market Position
USFD is on an impressive growth trajectory. According to its filings, US Foods owns approximately 400,000 stock-keeping units. The company serves multi-unit and independently owned single restaurants, national restaurant chains, regional restaurant concepts, hotels and motels, nursing homes, and country clubs, among many other institutions.
US Foods notes that it is one of only two foodservice distributors that operate nationwide in the United States and holds a market share of approximately 9 percent. The industry as a whole tops sales of $268 billion. U.S. Foods has approximately 250,000 customers nationwide and over 5,000 suppliers. In addition, they maintain a sales force of over 4,000 professionals, and their network includes 62 distribution facilities.
Highly Experienced Management Team
As described in USFD's SEC Filings, CEO and President Pietro Satriano has served in his position since July 2015, building on previous experience at LoyaltyOne Canada, Loblaw Companies, and Loyalty Management Group. Mr. Satriano began his career in strategy consulting, first with The Boston Consulting Group in Toronto and then with the Monitor Company in Milan, Italy.
CFO Fareed Khan has served in his position since 2013. His previous experience includes positions at United Stationers, USG Corporation, and USG Building Systems. He holds a MBA from the University of Chicago.
Risks to Buy Thesis: Competition From Sysco and Others
US Foods is the second largest foodservice distributor in the US; however, it faces competition from Sysco (NYSE:SYY), along with Performance Food Group (NYSE:PFGC), Gordon Food Services, Food Services of America, Rheinhart Food Services, Shamrock Foods, Maines Paper and Food Service, Ben E. Keith Foods, and The IJ Company.
Additional risks include a significant debt burden.
Solid Early Market Performance In A Difficult Market
U.S. Foods Holding Corp. got off to a steady start on the market by opening at $24.25, slightly higher than its IPO price of $23. The stock rose to reach a high of $25.40 on June 7. Currently, the shares trade at $23.64 (morning sessions, 6.17.2016).
Conclusion: New Buying Opportunity
We see a new opportunity to buy into this growing firm at the expiration of the quiet period before July 5th.
For firms like USFD, with solid public offerings and early market performance, the reports often correlate with an uptick of ~3% in stock price.
Furthermore, for the fiscal year ended on Jan. 2, 2016, USFD reported enormous net sales of 23.1 billion, followed by strong growth in net income to $168M. The IPO brought first-day returns of 8.3% in a very difficult market.
Not only is this a relevant trade but also a chance to buy into a strong and growing company.
Comments
Log in or sign up to join the conversation.