Sysco Corporation is suitable for the Enterprising Investor, but not the Defensive Investor, who is concerned with the low current ratio, lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor, on the other hand, is only concerned with the lack of earnings growth over the last five years. As a result, the Enterprising Investor should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
From a valuation side of things, the company has seen its EPSmg (normalized earnings) drop from $1.89 in 2011 to only an estimated $1.74 for 2015. This demonstrated growth does not support the market’s implied estimate of 7.28%. The company would have to see a significant change in its level of growth in order to meet the market’s estimated growth level. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.
Be sure to check out previous ModernGraham valuations of Sysco Corporation (SYY) for greater perspective!
Disclaimer: The author did not hold a position in Sysco Corporation (SYY) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.