United Natural Foods Inc. (NASDAQ: UNFI) is relatively unknown to most investors. That needs to change. The company is known for distributing natural, organic, and specialty foods, as well as non-food products. On the surface it seems very expensive as a stock at about 25-times expected earnings considering that is in food and is generally a distributor. What may be overlooked is that this is a defensive stock with a stranglehold on its target growth market, and that may assure the company’s growth and dominance for years to come. It might also be in such a good position that larger competitors might have to consider making a move to buy the company down the road.

An analyst upgrade in this morning’s top upgrades brought cause for us to revisit this stock. Piper Jaffray raised its rating to Overweight from Neutral and raised the price target to $64 from $57 in the call. That compares to a Thomson Reuters consensus price target of $60.10, which implied about 10.5% upside for the stock at the consensus targets. This new price target of $64 implies upside of almost 18% and the street-high price target is $66 for the stock. The Piper Jaffray upgrade is after a recent presentation that United Natural gave.

United Natural Foods claims to distribute more than 65,000 products from natural, organic and specialty product manufacturers. If you look at the image below, chances are high that you will recognize some or many of the brands and products if you shop at Whole Foods or other natural and organic food venues.

We are looking way beyond what Piper Jaffray sees here. First off, the growth and demand for higher quality food via naturals and organics seems to almost be insatiable. Whole Foods has taken off into a mega-premium grocer, to the point that we do not value Whole Foods as a grocery chain but more as a luxury retailer.

After earning $1.94 per share in fiscal 2012, the Thomson Reuters consensus is $2.17 EPS for 2013 and $2.48 EPS for 2014. That signals earnings growth of 12% this year and 14% next year. Accelerated earnings growth often brings in new investors to look much closer at a situation. At the same time, sales growth this year is expected to be 15% at $6.05 billion and 9% to almost $6.6 billion for 2014. There is even a consensus offered out to 2015 showing earnings at $2.81 EPS, implying earnings growth over 13% for that year.

We already admitted that 25-times earnings sounds high for a distributor. We also would point out that United Natural pays no dividend, another issue which may turn away some investors. Another issue is that United Natural manages its business from cash flow rather than accumulating a treasure trove of cash. With a market cap of $2.7 billion, this is only about 14% of the market value of Whole Foods.

If you go back to the great recession to see how its share price reacts under harsh times, United Natural Foods saw its stock peak in the mid-$30’s ahead of the recession and trade down to under $20 at the peak selling. Now the stock is almost at $55 after having peaked at $60 before a rare earnings miss took some wind out from its sales.

The company has been public for more than 15 years now. Its growth seems to be coming at the expense of much larger companies like the much larger Sysco Foods and ConAgra. We cannot help but wonder if one of the larger distributors might eventually be forced into an evaluation of whether or not United Natural Foods should just be acquired. It was just this morning that the Motley Fool was talking up this stock. While it has stock options, the volume is rather thin.

United Natural Foods is one of the companies which investors seem to hate paying up for. The problem is that it is growing and it really seems to have a solid stranglehold on an industry which keeps becoming more and more important. We think that this is why there is a premium and that puts the valuation concerns somewhat to bed. This may be the perfect stock for many investors. Other investors may want to remain patient and hope that a pullback or market selloff brings an opportunity to get in at a cheaper price.

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