United Natural Foods' stock price plunged 10.17% to $8.39 a share following the downgrade to underweight from equal weight by Wells Fargo analyst Edward Kelley.
Whole Foods' largest supplier, United Natural Foods faces the challenge of fighting for market share in a "structurally challenged industry" marked by rising competition and a shrinking customer base, according to the Wells Fargo research note.
Also weighing on the scales against United Natural Foods are a pattern of disappointing earnings and company guidance on future performance that remains too high, even after executives at the wholesaler scaled it back, the Wells Fargo analyst noted.
"Our move reflects concerns around the fundamental outlook," Kelley wrote, citing specifically the potential that UNFI's performance over the next year may lag behind its peers in the retail and food service sectors.
The giant Providence, Rhode Island-based wholesaler reported fiscal 2020 first quarter earnings of 12 cents a share on Dec. 11. That was well below the 23-cents-a-share estimate of analysts surveyed by Zacks Investment Research and a 22.7% drop from the same period in 2018.
United Natural Foods reported revenue of more than $6 billion, almost double the $3.1 billion it generated in the same period in 2018, with the big increase mainly stemming from United Natural Foods $2.9 billion acquisition of rival wholesaler Supervalu in late 2018.
Excluding the impact of the deal, United Natural Foods saw a 2.8% jump in net sales, according to Zacks.