Long-Term Investors Must Buy Sysco

Apr.26.13 | About: SYSCO Corporation (SYY)

Sysco (NYSE:SYY) is a good long-term buy. It has very good economics and a stable competitive advantage. The company has done well over the last few years and is a safe bet for the distant future. Aided by its good business model, good work culture, and efficient management, it is no wonder that Sysco is recognized as a great investment by many.

Some important factors that make Sysco a Buy:

1. Business Model

Sysco is the global leader in marketing and distributing products to restaurants, healthcare and educational facilities, hotels and inns, and other food service and hospitality businesses. Sysco is known for its prompt and accurate delivery of orders, competitive pricing, close contact with customers and the ability to provide a full array of products and services.

The key to Sysco's success is its internally generated standards for the distribution of goods. The company has differentiated itself by building a world-class quality assurance department to support the company's products. In addition, to maintain its edge in the market, Sysco modernizes its distribution facilities each year. For instance, in the last three years, $784.5 million, $636.4 million and $594.6 million, were invested in technology, facilities, delivery fleet and other capital asset enhancements.

Sysco strongly emphasizes employee satisfaction. Surveys show that 75 percent or more of its associates describe themselves as "satisfied" or "very satisfied," compared with 46 percent in the external market.

Sysco has a very well thought out business model, and the company works hard to follow it. Its market share in the industry is over 17%, and continues to grow. As long as Sysco can honestly service its customers, have high employee satisfaction, and continue to expand its distribution network, it will have no problems maintaining leadership in its industry.

2. Stable Management

Sysco's CEO, Bill DeLaney has been at the company for more than 25 years and understands the company's unique advantages. At his current age, 55, he could be expected to serve the company another decade or so. This decade would help Sysco further strengthen its position in the market.

3. Cash reserves

Sysco could consider strengthening its liquidity. Its current ratio is under 2, with current assets at $6.084 billion and current liabilities at $3.84 billion.

Even though the cash reserves seem lacking, lower debt at the company makes the problem less severe. Total long-term debt at the end of 2012 was $2.76 billion, while equity was $4.68 billion. Thus, the working capital is greater than the long-term debt.

Even though Sysco's reserves are not low enough to raise alarm, the company must start to gradually raise its current ratio. Long-term investors prefer companies that hold enough cash reserves to protect against unforeseen events and Sysco would be advised to toe the line.

4. Stock Price

Sysco's P/E ratio of 19 makes it a relatively well-priced stock in the market. S&P 500 mean P/E ratio is 18.32. The stock seems even more attractive in the light of its high dividend yield, 3.21%. The company has a dividend payout ratio of 59%.

Even though the company is not a value stock, it is sold at a great price relative to other companies that have such good business models, such as Starbucks (NASDAQ:SBUX), which has a P/E ratio of 31.

Conclusion

Sysco is one of the finest companies in the world. It has very good management, admirable employee satisfaction, a keen focus on quality assurance, and an overall recipe for success. Long-term investors should definitely buy this stock. The fundamentals of the company must change significantly in a negative direction before such advice would be revised.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.