Here's Why United Natural Foods (UNFI) Is a Defensive Stock According to the Graham Test

United Natural Foods meets some but not all of Benjamin Graham's requirements for a defensive stock. The Food Distribution company does not offer a large enough margin of safety for cautious investors, but it does have many qualities that may interest more enterprising investors.

United Natural Foods trades at Attractive Multiples

Benjamin Graham's so-called “Graham number” is a popular metric determining the fair price of a stock in relation to its earnings and the book value of its equity. We calculate the Graham number as √(22.5 * 6 year average earnings per share (0.29) * 6 year average book value per share (29.795), which for United Natural Foods gives us a fair price of $51.91.

In comparison, United Natural Foods’s market price is $14.71 per share. The analysis shouldn’t end here. The Graham number is just one of seven requirements for defensive stocks listed in Chapter 14 of The Intelligent Investor, which we will review below.

Positive Retained Earnings From 2010 To 2023, No Dividend Record, and Eps Growth In Excess Of Graham'S Requirements

Ben Graham wrote that an investment in a company with a record of positive retained earnings could contribute significantly to the margin of safety. United Natural Foods had positive retained earnings from 2010 to 2023 with an average of $947.3 Million over this period.

Another one of Graham's requirements is for a 30% or more cumulative growth rate of the company's earnings per share over the last ten years.To determine United Natural Foods's EPS growth over time, we will average out its EPS for 2009, 2010, and 2011, which were $0.36, $0.31, and $0.43 respectively. This gives us an average of $0.37 for the period of 2009 to 2011. Next, we compare this value with the average EPS reported in 2021, 2022, and 2023, which were $2.48, $4.07, and $0.40, for an average of $2.32. Now we see that United Natural Foods's EPS growth was 527.03% during this period, which satisfies Ben Graham's requirement.

We have no record of United Natural Foods offering a regular dividend.

Negative Current Asset to Liabilities Balance and a Decent Current Ratio

Graham sought companies with extremely low debt levels compared to their assets. For one, he expected their current ratio to be over 2 and their long term debt to net current asset ratio to be near, or ideally under, under 1. United Natural Foods fails on both counts with a current ratio of 1.6 and a debt to net current asset ratio of -1.0.


United Natural Foods offers a decent combination of value, growth, and profitability. These factors imply that the investment offers a decent margin of safety — especially if the shares are bought during a sell-off.

2017-09-26 2018-09-24 2019-10-01 2020-09-29 2021-09-28 2022-09-27
Revenue (MM) $9,274 $10,227 $22,341 $26,559 $26,950 $28,928
Gross Margins 15.0% 15.0% 14.0% 15.0% 15.0% 14.0%
Operating Margins 3% 2% 1% 1% 1% 1%
Net Margins 1.0% 2.0% -1.0% -1.0% 1.0% 1.0%
Net Income (MM) $130 $163 -$285 -$274 $149 $248
Net Interest Expense (MM) -$17 -$16 -$181 -$192 -$204 -$155
Depreciation & Amort. (MM) -$86 -$88 -$248 -$282 -$285 -$285
Earnings Per Share $2.56 $3.2 -$5.53 -$5.1 $2.52 $4.07
EPS Growth n/a 25.0% -272.81% 7.78% 149.41% 61.51%
Diluted Shares (MM) 51 51 52 54 59 61
Free Cash Flow (MM) $337 $154 $334 $483 $842 $352
Capital Expenditures (MM) -$56 -$45 -$49 -$26 -$228 -$21
Net Current Assets (MM) $458 $670 -$2,111 -$2,740 -$2,461 -$2,039
Long Term Debt (MM) $150 $31 $2,819 $2,427 $2,175 $2,109
Net Debt / EBITDA 0.46 0.06 5.87 3.98 3.57 3.26
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