Is CHEF Worth Buying as Strong Growth Meets Its Premium Valuation?

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CHEF's Sales Growth Supports a Premium Multiple

Management expects fiscal 2026 net sales of $4.50-$4.60 billion. Its longer-term framework calls for annual revenue growth of 7%-10% through 2030, driven primarily by organic expansion with potential moderate acquisition growth of about 1% annually.

The 2030 revenue target of $6-$6.5 billion reflects room to deepen customer penetration and expand capacity in underpenetrated markets. Sysco Corporation SYY, the global leader in foodservice distribution, and US Foods Holding Corp. USFD, a leading U.S. foodservice distributor, provide relevant competitive context as CHEF pursues additional share.

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Chefs' Warehouse Is Expanding Operating Leverage

Second-quarter gross profit increased 15.2% year over year, faster than the 12.9% rise in net sales. Adjusted EBITDA climbed 34.6% to $88.1 million, showing that higher volume and improved efficiency are translating into faster profit growth.

Gross margin expanded 49 basis points to 25.1%. Selling, general and administrative expenses rose 9.6% but declined to 20% of sales from 20.7% a year earlier. That expense leverage helped operating margin improve to 5.1% from 3.9%.

CHEF's Balance Sheet Adds Capital Allocation Flexibility

Net debt leverage fell to 1.6X at the end of the second quarter from 1.9X at the end of the first quarter. CHEF repaid $30 million of borrowings under its asset-based lending facility and ended the quarter with $321.1 million of total liquidity.

Year-to-date 2026 free cash flow reached $80 million, while trailing 12-month free cash flow was $126 million. Management expects $120-$150 million for fiscal 2026, giving CHEF flexibility to fund distribution and technology investments, pursue tuck-in acquisitions and increase share repurchases.

CHEF Still Faces Cyclical and Regional Risks

CHEF’s focus on upscale casual and higher-end dining leaves demand exposed to discretionary spending and travel activity. Middle East operations improved to about 94% of prior-year levels during May and June, but management remains cautious about the pace of tourism recovery later in the year.

Execution also matters as CHEF invests in distribution centers, fleet capacity, sales-force training and digital tools. Management expects capital expenditures to average about 1% of revenue over its five-year framework. If sales growth or capacity utilization disappoints, those investments could restrain margin expansion.

CHEF's Growth Profile Offsets a Weak Value Score

The bottom line is that CHEF’s growth, operating leverage and improving financial flexibility support the premium valuation, but the shares leave less room for execution slippage. The fundamentals favor the growth case, while the current multiple argues for discipline when considering an entry point.

CHEF currently carries a Zacks Rank #1 (Strong Buy), alongside a Growth Score of A and a VGM Score of B. These indicators favor investors seeking top-ranked stocks with favorable growth or blended style characteristics. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Value Score of D is the counterweight. Zacks Style Scores complement the Zacks Rank, and CHEF’s weaker value profile reinforces the trade-off between an improving earnings outlook and a valuation above both its sub-industry and historical norm.

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This article originally published on Zacks Investment Research (zacks.com).

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