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.
[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
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.
[/level-free]
[level-mg-stocks-screens-subscriber]
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
| 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 |
[/level-mg-stocks-screens-subscriber]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
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
Other ModernGraham posts about related companies
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.
Â
