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Report: Activist fund Sachem Head targets US Foods

Activist hedge fund Sachem Head Capital Management LP has targeted US Foods Holding Corp., claiming the company is undervalued relative to its food-distribution peers, Bloomberg News reported Dec. 17, citing a letter from Sachem sent Dec. 13.

The New York-based fund's Managing Partner Scott Ferguson reportedly told its investors that US Foods could boost earnings by adopting similar measures taken by its rival Sysco Corp., which Trian Fund Management LP targeted in 2015. "With the help of an activist shareholder, Sysco meaningfully expanded profitability by improving discipline around pricing and increasing focus on high-margin private label goods and lucrative smaller restaurant customers," Ferguson said.

Sachem Head also wants US Foods to pursue innovation in technology and central replenishment and said the company has already identified initiatives that could improve margins by 20 to 30 basis points per year.

The hedge fund, which has amassed a stake of about 2%, believes US Foods could generate $3 in cash EPS in 2020, translating to a 12-month price target of about $45 a share. The stock was trading at $31.18 as of Dec. 17.