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Sysco Corporation Message Board

  • steve_382 steve_382 Mar 29, 2009 9:17 PM Flag

    Another Barron's Article on SYY

    Thought I would post this in case some didn't see it.

    Pounding the Table for Sysco
    By TERESA RIVAS | MORE ARTICLES BY AUTHOR

    The foodservice-distributing giant is poised to eat rivals' lunches.

    THE RECESSION, WHICH HAS battered corporate earnings, stock prices, and consumer confidence, has left a bitter taste in many investors' mouths.

    But for those willing to brave the market, Sysco (ticker: SYY) may sate their appetite for a low-risk stock with ample upside.

    There's no doubt that Sysco, the nation's largest foodservice distributor, is facing tough times as cash-strapped consumers cut back on visits to restaurants, the company's biggest customer.

    However, management has been able to pare expenses successfully -- Sysco actually beat analysts' estimates last month on cost-cutting measures -- leaving it with a growing dividend, currently yielding 4.2%, and plenty of free cash. Also, as smaller rivals struggle, Sysco, with its heft, can more easily steal market share and buy troubled competitors.

    "It's happened before; they come out stronger after a recession and pick up new customers," says BB&T analyst Andrew Wolf. "Though this environment is really unprecedented, they have very strong free cash flow and operating culture to manage through this."

    Indeed, the company has outperformed its peers in the last year. The stock lost 23% in the past 12 months, about half the 41.8% loss seen by the broader market, and ahead of its rivals tracked by the Dow Jones U.S. Food Retailer & Wholesalers Index, down 28.5%.

    With a forward price-to-earnings multiple of 12.5, near its historic lows, this is an excellent time for investors to get into this industry-leading "best of class" company, as Wolf calls it.

    Wolf also notes that Sysco's cash position -- with $1.79 in free-cash-flow per share and almost $375 million on its balance sheet -- also makes its dividend secure, with room for future hikes.

    Sysco is an early cycle stock, meaning it will likely turn ahead of a broader recovery, so investors willing to buy now can reap the gains when the company emerges stronger from this downturn.

    And investors may not have to wait long.

    David Scott, longtime portfolio manager for the Chase Growth Fund (CHASX), says the stock could start rising within one or two months.

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    • Part 2


      "It will be one of the leaders when the economy begins to do better," he says. "Moving into the spring and early part of the summer, we expect to see an uptick."

      Sysco has cut personnel and fuel costs and centralized purchasing while optimizing supply-chain and routing efficiencies. It also has rolled out regional distribution centers, among other internal initiatives that help to offset tightening margins. Naturally, being the largest player in the industry, the company also has economies of scale working for it, too.

      "What we like about it is the fact that 40% of their business is in areas that are less economically sensitive, like health care, military and the schools," says Wells Fargo analyst Greg Stevenson. "They also have some of the best margins [in the industry]. People may eat out down-market, or eat lunch or breakfast out instead of dinner. That impacts margins, but much less so for Sysco than its competitors."

      Management has also kept Sysco's balance sheet clean, with no looming debt maturities for several years.

      However, while Sysco's earnings are not falling precipitously, like so many companies today, they will likely be flat in the short term before turning around. Earnings will be flattish between this year and next, after fiscal 2008's 13.1% earnings-per-share jump.

      Additionally, if the economy does not start to show some signs of life this year, as many are expecting, the positive bounce for Sysco shareholders will take longer than expected to materialize.

      That said, what does seem inevitable is the fact that Sysco will bounce when the economy eventually turns around, and it will be stronger for its increased efficiencies and market-share gains. And in the meantime investors can enjoy a steady diet of hearty dividend yields.

      All of which makes Sysco a tasty treat for investors.

      • 1 Reply to steve_382
      • a leader before the upturn
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        The study, reported Sunday at the annual scientific meeting of the American College of Cardiology, suggests that the blockbuster class of cholesterol drugs called statins, already well-established to prevent heart attack and stroke, may have an additional benefit in protecting people against the clotting problem even though bad cholesterol isn't thought to play a role in development of the clots

 
SYY
52.13+0.04(+0.08%)Jul 25 4:04 PMEDT