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Sysco Corporation (SYY), with a market cap of $20.19B, is the largest North American food service distributor, controlling 17.5% of the estimated $225 billion market. SYY's upcoming earnings will be previewed. Both fundamental and technology analysis for SYY will also be reviewed in this article.

Earnings Estimates

Analysts currently have a mean target price of $31.44, which is below the last closing price of $34.46 on April 16, 2013. Analysts, on average, are estimating an EPS of $0.43 with revenue of $11.10B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.91 with revenue of $44.71B, which is 5.50% higher than 2012. In the last four quarters, SYY had two positive and two negative earnings surprises. SYY is expected to release its Q3, 2013 earnings on May 2, 2013.

Fundamentally, SYY's key stats will be compared to the averages in the industry of food distribution to see where it stands.

Sysco

Industry Average

Market Cap

$20.19B

N/A

Revenue Growth (3 Year Average)

4.8

2.2

Operating Margin, %, ttm

4.2%

4.2%

Net Margin, %, ttm

2.5%

2.4%

ROE, ttm

22.5

22.0

Debt/Equity

0.6

0.5

P/E

18.5

22.4

P/E 5 Year Average

15.0

N/A

Forward P/E

15.7

14.3 (S&P 500's average)

Source: Morningstar

SYY's margins and ROE are basically in-line with the industry average. However, SYY enjoys a higher revenue growth. From the valuation perspective, although SYY's P/E is lower than the industry average, SYY's current P/E is higher than its 5-year average. SYY's Forward P/E of 15.7 is also higher than S&P 500's average. As for the cash flow, SYY generates a steady cash flow with an operating cash flow of $1.25B and a levered free cash flow of $786.98M.

While there is no competitor with the same scale as SYY in the food distribution industry, it is interesting to see how SYY compared to companies in the industry of grocery retail, including SUPERVALU Inc. (SVU) and United Natural Foods, Inc. (UNFI).

Sysco

SUPERVALU

United Natural Foods

Market Cap

$20.19B

$1.11B

$2.50B

Revenue Growth (3 Year Average)

4.8

-6.8

14.9

Operating Margin, %, ttm

4.2%

0%

3.0%

Net Margin, %, ttm

2.5%

0%

1.8%

ROE, ttm

22.5

-127.1

10.1

Debt/Equity

0.6

882.9

0.2

P/E

18.5

-2.3

25.3

P/E 5 Year Average

15.0

4.4

22.2

Forward P/E

15.7

5.7

20.0

Source: Morningstar

SUPERVALU had sold parts of its supermarkets, and its main business consists of wholesale distribution business. United Natural Foods is a distributor of natural, organic and specialty foods and non-food products in the U.S. and Canada. Grocery retailers in general have low margins and SUPERVALU's supermarket business continues to face major secular challenges. On the other hand, with SYY's expansive distribution network and extensive product offering, SYY enjoys a wide economic moat, thus is able to achieve higher ROE and margins for its shareholders.

Technically, SYY is on the long-term upside since July, 2012. SYY continues to trade above its 50-day and 200-day MA, as seen from the chart below.

(click to enlarge)

Source: Finviz.com

Bottom Line

SYY remains a solid long-term hold with its wide economic moat, steady cash flow, and high ROE. However, in the near-term, there are some valuation concerns as SYY is currently trading with a Forward P/E of 15.7, which is higher than the S&P 500's average of 14.3. SYY's current P/E of 18.5 is also higher than its 5-year average of 15.0. For bullish investors, a credit put option spread of August 17, 2013 $30/$32 put can be reviewed to gain some upside credit premium or to acquire SYY stock at a price below $32 upon options expiration. Investors can also review the following ETFs to gain exposures to SYY:

  • Morningstar Wide Moat Focus ETN (WMW), 5.18% weighting
  • SPDR S&P Dividend ETF (SDY), 1.82% weighting

Note: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: Sysco: Solid Holding But With Short-Term Valuation Concern