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Investing.com -- The food distribution sector is showing promising investment opportunities, with two major players standing out in Bernstein’s latest analysis. Both US Foods and Performance Food Group demonstrate strong potential for margin expansion and market share growth in the competitive food service distribution landscape.
Bernstein’s research highlights these companies’ distinctive strategies for navigating industry challenges while capitalizing on growth opportunities. Their analysis points to significant upside potential for both stocks, with each company leveraging unique competitive advantages.
US Foods (NYSE:USFD)
Bernstein rates US Foods as "Outperform" with a price target of $95.00, representing a 25% potential upside. The firm believes US Foods has an underappreciated opportunity to increase margins sustainably, projecting a 130 basis point EBIT margin improvement by fiscal year 2027, exceeding consensus estimates of 100 basis points. The company is growing 2-3 times faster than the market in key segments while maintaining margin discipline. Growth drivers include vendor management optimization, reduced indirect spending, and favorable segment mix shifts toward private label and higher-margin businesses. US Foods’ digital capabilities and more flexible delivery options should boost penetration with independent restaurants. Bernstein expects US Foods to eventually close its valuation gap versus Sysco, modeling 12% adjusted EBITDA growth with an 11.3x EV/EBITDA ratio.
In a recent update, US Foods reported second-quarter EBITDA growth of 12%, which exceeded projections, and reaffirmed its fiscal year 2025 guidance. Following the results, firms including Guggenheim and Piper Sandler raised their price targets on the company.
Performance Food Group (NYSE:PFGC)
Also rated "Outperform" by Bernstein, Performance Food Group has a price target of $130.00, suggesting a 28% potential upside. The company is expected to continue growing independent cases faster than competitors, supported by a highly incentivized and decentralized salesforce focused on winning market share, even at the expense of lower margin flowthrough. Bernstein projects 15% EBITDA growth in the near term, with Performance Food Group growing into its 11.5x multiple. As the company scales both organically and through its proven acquisition strategy, Bernstein anticipates greater margin opportunities. While noting potential cultural integration challenges, Bernstein views a possible merger with US Foods as transformational for both companies and likely to accelerate returns for shareholders.
Performance Food Group reported fourth-quarter fiscal 2025 results where sales and adjusted EBITDA figures exceeded consensus expectations. The company also received an upgrade to Overweight from Piper Sandler and appointed Scott Ferguson of Sachem Head Capital Management to its Board of Directors.
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