Sysco: Where to Find Value and Growth Potential

I recently posted a PODCAST ON SYSCO (SYY). Usually I write up an entry first and then follow with a podcast. Last night I did it the other way around.

We live in difficult times. I don't really need to tell you about the growing unemployment, the latest bank failures, or what the New York Fed reported on manufacturing. These are things that everyone knows.

What is harder is trying to find some reasonable place to park one's funds. I would like to suggest that an investment in Sysco might be a place to find some value and potential growth while waiting for the eventual economic recovery.

Sysco closed Monday at $22.82, down $1.12 or 4.68% on the day. I do not own any shares of this stock but have owned it in the past and would consider buying shares once again in the future.

Looking at a few of the things I like to review, the latest quarterly report was fair. They met expectations on earnings which did decline slightly and came in a little light on revenue. Longer term, looking at the Morningstar.com '5-Yr restated' we see that the company has a record of steadily growing its revenue, increasing its earnings---both of which did recently take a slight dip--paying a nice dividend and increasing it (the company now yields 4%), buying back its shares, increasing free cash flow, and maintaining a solid balance sheet.

Valuation-wise, looking at Yahoo "Key Statistics" on SYY, the company has a modest P/E of only 12.74 (trailing) with a PEG estimated at only 1.14. The last split was over 8 years ago.

Certainly, the 'point & figure' chart from StockCharts.com is somewhat less than inspiring. I am not sure I agree with the bearish objective of $11/share, but we don't see much in the way of technical support on this particular chart.

click to enlarge

In some ways this type of 'pick' is out of my usual momentum play. But then again, my own philosophy is being tempered by the difficult environment we are experiencing and the fact that little of the usual momentum type investment is apparent. I would characterize this sort of stock as more of a GARP pick. It shares many of the important characteristics that I look for in a company: the steady growth in revenue, earnings, dividends, and free cash flow. It has been buying back its own shares and carries a solid balance sheet. I even can see evidence of its business with its many shiny trucks on the road right where I work.

Anyhow, that's my idea of a 'comfort stock' in these uncomfortable times.

Disclosure: I do not own any shares of this stock but have owned it in the past and would consider buying shares once again in the future.

Comments

[jepittman:]

You can go to the company's website www.sysco.com/ and get the audio of a recent presentation to a Sanford-Bernstein investment conference. Bottom line is things are tough out there but have stopped going down. The economy should begin to recover in the second half of the year. SYY's fiscal year ends in June so perhaps next year brings positive earnings comparisons.

One other thing: SYY has made an aquisition in Ireland, their first overseas. It won't move the needle but they made it on their terms and the Pallas Foods group is a leading foodservice providor. The acquired company should benefit from SYY's enormous food sourcing network.

The stock has bumped its head recently around $24. Should it decisivly break this level it should move quickly to the $30 area. Get a position during this market pullback. Get it before June 30 and collect the next generous quarterly dividend, their 158th consecutive.

Jun 16 08:07 PM

[granger:]

I have followed and owned SYY for a long time. I actually lightened for the first time ever in the high 24's.

I love SYY and its fundamental strength. I believe it is one of the best run companies in the United States. I consider it a premiere holding.

But, I am a staunch P&F follower.

It scares me that one of my favorite companies is giving such a poor fundamental picture on its P&F chart.

If what I consider best of breed is having trouble, what is the rest of the restaurant/ leisure industry looking like.

If SYY s is going lower, then things must be very tough out there.]

(SYY is still probably one of the best places to sit out the coming storm)

Jun 17 09:08 AM

[mdpath:]

Good company but its never been a good stock.

Jun 17 09:47 AM

[jepittman:]

You just don't go back far enough. 'Never' is a long time. From 1995 until early 2004 the stock was a five bagger. In 2000 the share price was comparable to what it is today. Then the company earned $.68 per share and paid a dividend of $.23 per share. Today the comapny is expected to earn $1.77 per share (in a VERY depressed year) and will pay at least $.96 a share in dividends. I expect this year (ends June 30) will be the trough year. Next year could see EPS at $1.85 or higher and the dividend near $1.00 per share. For me it is a bit hard to swallow a bearish view at these prices unless there is a continued economic contraction.

Part of the reason for the recent poor price behavior is that the entire investment world believes the consumer is dead and isn't coming back. Its soup and beans at home from now on. If this is in fact how it plays out then perhaps SYY stays flat. I think human nature and old habits are hard to break. Dining out is a small ticket luxury and when the consumer starts feeling better he will return to his favorite restaurants and enjoy an evening with friends and/or family. When he does SYY will see their volumes soar and their EPS right along with it. When SYY decisivly breaks through $24 (it may be several more weeks) it should run quickly to $30. Like the author, I am an amatuer so talk with your financial advisor. IMO, SYY will be a five bagger again.


On Jun 17 09:47 AM mdpath wrote:

> Good company but its never been a good stock.

Jun 17 03:13 PM

[Uncle BIM:]

The consumer is hardly dead. As a psychologist and stock analyst, certain areas never get obsolete, such as food. Fewer people will eat at home once the recession ends, and companies that supply food to restaurants and food stations are a safe bet to say the least. I look for SYY to outperform the market in the coming months.

Jun 18 06:05 PM

[Robert Free...:]

Thanks for your comment. Sysco is indeed struggling but it is the '250 pound gorilla' in the business and seems to have a good strategy for continued growth. What would serve this company best would be a reignition of growth in the economy with less unemployment and more demand at restaurants. Until then, we may well see SYY tread water in this price range.


On Jun 16 08:07 PM jepittman wrote:

> You can go to the company's website www.sysco.com/ and get
> the audio of a recent presentation to a Sanford-Bernstein investment
> conference. Bottom line is things are tough out there but have stopped
> going down. The economy should begin to recover in the second half
> of the year. SYY's fiscal year ends in June so perhaps next year
> brings positive earnings comparisons.
>
> One other thing: SYY has made an aquisition in Ireland, their first
> overseas. It won't move the needle but they made it on their terms
> and the Pallas Foods group is a leading foodservice providor. The
> acquired company should benefit from SYY's enormous food sourcing
> network.
>
> The stock has bumped its head recently around $24. Should it decisivly
> break this level it should move quickly to the $30 area. Get a position
> during this market pullback. Get it before June 30 and collect the
> next generous quarterly dividend, their 158th consecutive.

Sep 24 03:31 PM

[Robert Free...:]

Thanks for commenting. The P&F still is a struggle now (9/24/09) but the stock is slowly moving higher from its recent low of $19.50 in March, 2009. Would like to see the stock trade north of $29 technically to feel like the chart is more promising.


On Jun 17 09:08 AM granger wrote:

> I have followed and owned SYY for a long time. I actually lightened
> for the first time ever in the high 24's.
>
> I love SYY and its fundamental strength. I believe it is one of the
> best run companies in the United States. I consider it a premiere
> holding.
>
> But, I am a staunch P&F follower.
>
> It scares me that one of my favorite companies is giving such a poor
> fundamental picture on its P&F chart.
>
> If what I consider best of breed is having trouble, what is the rest
> of the restaurant/ leisure industry looking like.
>
> If SYY s is going lower, then things must be very tough out there.]
>
>
> (SYY is still probably one of the best places to sit out the coming
> storm)

Sep 24 03:33 PM

[Robert Free...:]

I think stocks like SYY and ECL in a similar line of work will be strong players once the economy gets back on track which appears to be not at least until the first or second quarter of 2010. Meanwhile, I would agree that this is probably not too bad a place to park one's funds.


On Jun 18 06:05 PM Uncle BIM wrote:

> The consumer is hardly dead. As a psychologist and stock analyst,
> certain areas never get obsolete, such as food. Fewer people will
> eat at home once the recession ends, and companies that supply food
> to restaurants and food stations are a safe bet to say the least.
> I look for SYY to outperform the market in the coming months.

Sep 24 03:34 PM