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Why United Natural Foods, Inc. (UNFI) Fell Sharply on Monday

United Natural Foods, Inc. (NASDAQ:UNFI) shares fell over 8% on Monday after Barry Rosenstein‘s Jana Partners disclosed an around 9% stake in Whole Foods Market, Inc. (NASDAQ:WFM). Activist fund Jana wants Whole Foods, among other asks, to consider ‘evaluating opportunities to re-engineer the [Whole Foods’] suboptimal and cost-disadvantaged grocery procurement and distribution strategy, such as by internalizing distribution or pursuing other hybrid strategies, in order to diversify away from its existing primary wholesale distribution partner, while in the interim implementing better management and increased auditing of this relationship to reduce costs, improve execution, and limit such distribution partner’s influence’. As it stands, United Natural Goods has been the primary distributor to Whole Foods Market for over 18 years, and the present market read is that the company could potentially take a hit in terms of earnings if Jana gets its way. Some Wall Street analysts, such as William Kirk of RBC, think that United Natural Foods, Inc. (NASDAQ:UNFI)’s potentially amended contract terms with Whole Foods is unlikely to generate substantial gains for the grocer if reworked, however.

What Does The Smart Money Sentiment Say?

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 39.7% gains over the past 12 months and outperformed the 24.1% gain enjoyed by the S&P 500 ETFs. Our enhanced small-cap hedge fund strategy returned more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points over the last 4.5 years (see details here).

The smart money was less bullish on United Natural Foods in the fourth quarter. Of the 742 elite funds we track, 16 were long $143.47 million of United Natural Foods, Inc. (NASDAQ:UNFI) and accounted for 6.00% of the float on December 31, versus 21 funds and $162.68 million on September 30.

The Bottom Line

United Natural Foods, Inc. (NASDAQ:UNFI) shares fell sharply on Monday due to the market read that activist Jana Partners might force Whole Foods to rework its contract with United Natural Foods. For more reading, check out ‘Foods That Improve Your Skin Texture‘.

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