United Natural Foods (UNFI) needs to return to consistent topline growth despite remarkable turnaround efforts and earnings improvements, UBS said in a research report emailed Wednesday.

In Q2, most of United Natural's businesses faced pressure from planned customer attrition and grocery headwinds, but the company is growing in line with the low-single-digit growth of its targeted $90 billion total addressable market, analysts wrote.

The Natural segment benefited from continued category growth in Q2, but the conventional segment sales fell, indicating broader challenges for conventional grocers. However, the landscape offers the company an opportunity to offset these headwinds through a more differentiated chain, according to the note.

The company's cost efficiencies are driving profit improvements and subsequently strengthening its cash flow and balance sheet. The brokerage said it expects modest gross margin benefits in H2 amid improving customer mix and shrink enhancements.

The brokerage said it reiterated its neutral rating on the stock and increased its price target to $44 per share from $42.

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