I believe that the market is wrongly fixated on the cyber attack and is missing management’s insistence that the disruption is largely resolved and that operational improvement and de-leveraging trend is unaffected. In the near term, UNFI has a 1:1.7 risk / reward assuming 75% odds of pre-hack valuation and 25% odds of pre-update fear valuation with 0% consideration for my bull case of +79%. Over the next 12 months, r/r increases to 1:8.5 as the street gives credit to UNFI’s guided execution.
UNFI is a grocery store supplier that connects 11,000 suppliers and 30,000 grocer locations. It is an operational laggard in an industry with <1% FCF margins; this is a short/medium term trade taking advantage of the market’s extreme skepticism despite a well executed turnaround so far.
This Opportunity Exists Due to a Cyber Attack & Associated Operational Disruption
The July 16th operational update call told us that UNFI shut down all operating systems on June 6th. By the 16th, they restored primary electric ordering systems (could ship and receive most customer orders) and through that week restored capabilities for inbound product deliveries and AP & AR functions. By June 26th, UNFI safely restored core systems and broadly returned to normal operating capacity.
Analysts were concerned about potential penalties from unmet volume minimums, total $ damages, changes to recent momentum, and waving customer confidence.
However, management re-affirmed their accelerated leverage goal of 2.5x by EOY fiscal ‘261, continued revenue & margin growth, and soft-launched a new customer add:
Q: Does this affect willingness/ ability to get new customers?
A: Expect to be in normal operations turning into ‘26. One customer joining system is delayed coming on board by 60 days so UNFI can be sure they are fully on track. Don’t see other changes.
Q: For 2.5x lev target, is there cash insurance reimbursement baked into that?
A: It’s independent of the insurance cycle. 2.5x turns are expected based on reducing debt & EBITDA growth.
Q: Is there any way to give the last couple weeks with the run rate on top line?
A: “We’re seeing a return to the momentum growth that we saw before the incident”
My bear case is $21 based upon the trading lows upon disruption (-23%) & my base case is $31 based on the trading price before the attack (+13%).
Bull Case of $49.11 is Based Upon Management’s Implied ‘26 EBITDA Guide
My bull case is dependent on further de-leveraging & margin improvements thanks to an operational turnaround started by James Pappas. He successfully installed 3 new board members in October ‘23 and a new President/CFO, Matteo Tarditi, in March ‘24.
On 6/10/25, UNFI moved the 2.5x Net Debt/EBITDA target from fiscal YE ‘27 to ‘26 and re-affirmed the timing on the update. The implied ‘26 EBITDA guide is therefore:
A small part of the de-leveraging story is the closure and sale of distribution centers to streamline operations. With the sale of a Montana DC in ‘24, there are just 2 remaining in Bismarck and Fort Wayne. Management gave an update on the 6/10/2025 earnings call: “we’re continuing to market facilities in Bismarck and Fort Wayne and have a letter of understanding from a potential buyer for the largest building at the Fort Wayne complex.”
On June 23, 2025, C&S bought SpartanNash, a smaller competitor, for 6.4-6.7x EBITDA based on their ‘25 guide. UNFI currently trades at 5.9x ‘26 consensus EBITDA which is already too low.
My bull case of $49.11 per share (+79%) assumes a 6.55x multiple at the midpoint on ‘26 EBITDA.
To be fair, SpartanNash is a smaller company with likely higher synergies, but in ‘24 they only did $205.6 mm of FCF (0.2% of net sales) and have guided to a 2.8% EBITDA margin compared to UNFI’s presumed 0.5% FCF margin & 2.2% EBITDA margin.
I believe that the guidance and consensus gap is due to UNFI’s low liquidity, optically high leverage due to GAAP lease accounting, and short tenured management.
The obvious risk lies in management’s execution; however, there has not been much reason to doubt management outside of the hack, which appears much better than initially feared.
Assuming 67% odds of base / bear case split 75% and 25% probability with a 33% chance of my +79% bull case, you arrive at a 12 month return of 29% with nearly 1:9 risk / reward.
August 2nd is fiscal year end