Sysco a 3 Star Hold

Linked here is a PDF copy of my detailed analysis of Sysco Corp (SYY) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for food-service industry in the United States and Canada.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

SYY is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, SYY is trading at a 12.6% discount. SYY earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.

SYY earned one Star in this section for 3.) above. SYY has paid a cash dividend to shareholders every year since 1970 and has increased its dividend payments for 37 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to >MMA

SYY earned one Star in this section for 1.) above. The NPV MMA Diff. of the $4,488 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as SYY has. If SYY grows its dividend at 7.3% per year, it will take 5 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.

Other: SYY is a member of the S&P 500 (SPY) and a member of the Broad Dividend Achievers™ Index. SYY has the largest player in its industry, and some analysts believe SYY is gaining share during these difficult times. Restaurants accounted for approximately 63% of fiscal 2008 sales. SYY should continue to see internally generated growth and growth from acquisitions. Risks include slowing of growth rates, sharp increases in fuel prices, and a prolonged slowdown in restaurant sales due to worsening economic conditions..

Conclusion: SYY earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of three Stars. This quantitatively ranks SYY as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price could drop to $24.91 for SYY's NPV MMA Differential to be around the $3,000 that I like to see. At that price the stock would yield 3.53%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 6.2%. This dividend growth rate is slightly below the 7.3% used in this analysis.

As my allocation allows, I will continue to add to SYY shares when its price is below $24.91.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in SYY (2.2% of my Income Portfolio) .

Comments

[jepittman:]

Sysco has long been one of my favorite stocks. High return on capital, focused execution and a consistent dividend contrasts favorably with much of the mediocrity we see elsewhere. They do service restaurants which will experience a slowdown but they also service hospitals, schools, and military bases which probably will not see much decline. Lower diesel prices removes a headwind and lower gasoline prices adds a little extra to spend on a meal out. People are not going to stop going out to eat.

2008 Nov 22 03:55 PM