Food Processing Stocks

Sysco Corporation Analysis – September 2015 Update $SYY

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Sysco Corporation (SYY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Sysco Corporation (Sysco) along with its subsidiaries and divisions, is a North American distributor of food and related products primarily to the foodservice or food-away-from-home industry. The Company provides products and related services to approximately 425,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Sysco provides food and related products to the foodservice or food-away-from-home industry. The Company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are the main segments. Broadline operating companies distribute a line of food products and a variety of non-food products to their customers. SYGMA operating companies distribute a line of food products and a variety of non-food products to chain restaurant customer locations. The Company’s other segments include its specialty produce, custom-cut meat and lodging industry products segments.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SYY – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $1.58
MG Growth Estimate -2.63%
MG Value $5.10
Opinion Overvalued
MG Value based on 3% Growth $22.84
MG Value based on 0% Growth $13.39
Market Implied Growth Rate 8.47%
Current Price $40.07
% of Intrinsic Value 786.31%

Sysco Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the low current ratio and the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.91 in 2012 to an estimated $1.58 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.47% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Sysco Corporation (SYY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

SYY Charts September 2015

Net Current Asset Value (NCAV) -$2.06
Graham Number $18.91
PEmg 25.44
Current Ratio 1.22
PB Ratio 4.56
Dividend Yield 2.97%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Total Current Assets $11,494,300,000
Total Current Liabilities $9,399,615,000
Long-Term Debt $2,271,825,000
Total Assets $17,989,280,000
Intangible Assets $2,114,625,000
Total Liabilities $12,729,060,000
Shares Outstanding (Diluted Average) 599,255,000

Earnings Per Share History

Next Fiscal Year Estimate $1.81
Jun15 $1.15
Jun14 $1.58
Jun13 $1.67
Jun12 $1.90
Jun11 $1.96
Jun10 $1.99
Jun09 $1.77
Jun08 $1.81
Jun07 $1.60
Jun06 $1.36
Jun05 $1.47
Jun04 $1.37
Jun03 $1.18
Jun02 $1.01
Jun01 $0.88
Jun00 $0.67
Jun99 $0.54
Jun98 $0.43
Jun97 $0.43
Jun96 $0.38

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.58
Jun15 $1.52
Jun14 $1.75
Jun13 $1.84
Jun12 $1.91
Jun11 $1.89
Jun10 $1.80
Jun09 $1.67
Jun08 $1.59
Jun07 $1.45
Jun06 $1.34
Jun05 $1.28
Jun04 $1.14
Jun03 $0.96
Jun02 $0.81
Jun01 $0.66
Jun00 $0.53

Recommended Reading:

Other ModernGraham posts about the company

21 Companies in the Spotlight This Week – 5/9/15
Sysco Corporation Quarterly Valuation – May 2015 $SYY
58 Companies in the Spotlight This Week – 1/31/15
Sysco Corporation Quarterly Valuation – January 2015 $SYY
14 Companies in the Spotlight This Week – 10/11/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.

 

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