Amazon.com, Inc. (NASDAQ: AMZN)'s
proposed acquisition of
Whole Foods Market, Inc. (NASDAQ: WFM)
triggered a sell-off among food distribution stocks. However, Guggenheim analyst John Heinbockel sees this price movement creating a buying opportunity for
two stocks in this sector.
“Shares of the Big Three foodservice distributors fell 2-5% Friday on conjecture that Amazon could eventually target the sector
for expansion. This seems highly unlikely to us, especially in the near-to-intermediate-term,” Heinbockel noted.
Thus, Heinbockel placed Buy ratings on Performance Food Group Co (NYSE: PFGC) ($26.80 price target) and US Foods Holding Corp (NYSE:
USFD) ($26.67 price target).
Why An Expansion Is Unlikely
Heinbockel said: “Foodservice distribution requires a separate, dedicated supply chain as well as a field-level salesforce to
market to independent accounts. In addition, there is usually significant inertia with these accounts, especially as it relates to
fresh food.”
He also noted how challenging it would be Amazon to build its own food distribution supply chain, as it is a very difficult
model for a business to build.
Overall, his bull case remains intact as fundamentals are still solid for food production stocks, even in a competitive consumer
environment. He specifically stated how the big three food-service distributors are continuing to gain market share, see
accelerating M&A activity, use free cash flow to create value and benefit from costs reductions.
Related Links
Chef's
Warehouse, Performance Food Group: 2 Food Names Analysts Find Appetizing
Amazon's Acquisition Of Whole Foods Should Create Lower Prices, Offer Better Consumer Experience
Latest Ratings for PFGC
Date |
Firm |
Action |
From |
To |
May 2017 |
Loop Capital |
Initiates Coverage On |
|
Buy |
Jan 2017 |
RBC Capital |
Initiates Coverage On |
|
Sector Perform |
Jan 2017 |
RBC Capital |
Initiates Coverage On |
|
Sector Perform |
View More Analyst Ratings for
PFGC
View the Latest Analyst Ratings
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