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

We think US Foods, the second-largest U.S. food-service distributor after narrow-moat Sysco, is emerging from the pandemic in a stronger position that it was prior to the crisis, given the $1 billion in new business secured since the onset of the crisis (as operators migrated to larger, more stable distributors), and the permanent elimination of $100 million in operating expenses. We expect US Foods' organic sales will return 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 believe the firm does not possess a moat.