US Foods Should Emerge From the Pandemic Stronger, but Moat Remains Elusive

We think US Foods, the second-largest U.S. food-service distributor after narrow-moat Sysco, will emerge from the pandemic in a stronger position that it was prior to the crisis, given the $1 billion in new business secured over the past year (driven in part by smaller competitors strugling to remain viable given anemic demand), and the permanent elimination of $130 million in operating expenses. We expect the increasing availability of COVID-19 vaccines in 2021 will return US Foods' organic sales to prepandemic levels by 2022, with long-term opportunities remaining intact. But as US Foods has not demonstrated a cost advantage, organic market share gains (outside of the local restaurant segment), consistent economic returns, or superior profits, we do not grant the firm a moat.