UBS Is Cautious On Hain Celestial, Campbell Soup And Conagra Following Whole Foods Deal

What impact, if any, will Amazon.com, Inc. AMZN's $13.7 billion acquisition of the organic and natural grocer Whole Foods Market, Inc. WFM have on the broader food industry?

Whole Foods boasts just 456 stores and $15.7 billion in revenue (of which $2.6 billion is from its private label brand) and represents a "small footprint" within the entire food industry, UBS's Stephen Powers commented in a research report. Yet despite Whole Foods' small market share, a tie-up with Amazon has "far-reaching implications" as it comes at a time of heightened competition in the sector.

Amazon's acquisition of Whole Foods could also speed up the industry shift of grocery stores' online presence, the analyst added. In addition, the deal could make organic more offerings "more mainstream," especially if Amazon chooses to use Whole Foods' private brand to bolster its own private label aspirations.

Hain Celestial Most Exposed

Although most of the companies Powers covers have less than 3 percent revenue exposure to Whole Foods and Amazon, the primary exception is Hain Celestial Group Inc HAIN. Specifically, Hain's distributor, United Natural Foods, Inc. UNFI, accounts for 12 percent of all Hain sales and United Natural has a supply agreement with Whole Foods.

Nevertheless, the entire consumer packaged goods group will likely see pressure from Amazon's "sales-velocity-driven merchandising focus" and willingness to push private labels, the analyst warned (check out Powers' track record). This could "displace less productive" brands, especially when factoring in Aldi/Lidl's push inside the American market and any future response from Wal-Mart Stores Inc WMT and Kroger Co KR to bolster its competitive offerings.

Buy Recommendations

Investors should consider owning multi-national food stocks with multiple brands, including:

• The Coca-Cola Co KO.
• PepsiCo, Inc. PEP.
• Procter & Gamble Co PG.
• Mondelez International Inc MDLZ.
• Kraft Heinz Co KHC.

Cautious List

Finally, the analyst is most cautious on Hain Celestial and to a lesser extent on Campbell Soup Company CPB and Conagra Brands Inc CAG.

Related Links:

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Analysis: Food Sector Weakness In Response To Amazon–Whole Foods Deal Is 'Overblown'