Company Profile (excerpt from Reuters): Sysco Corporation (Sysco), incorporated on May 8, 1969, is a distributor of food and related products primarily to the foodservice or food-away-from-home industry. The Company’s segments include Broadline, SYGMA and Other. The Company’s Broadline segment is an aggregation of its Broadline operations located in the Bahamas, Canada, Costa Rica, Ireland, Mexico and the United States. Broadline operating companies distribute a full line of food products and a range of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating companies distribute a full line of food products and a range of non-food products to certain chain restaurant customer locations. The Other segment includes the Company’s specialty produce; custom-cut meat operations; lodging industry segments; a company that distributes specialty imported products; a company that distributes to international customers, and Sysco Ventures platform, which includes a suite of technology solutions that help in supporting the business needs of Sysco’s customers. The Company operates through its subsidiaries and divisions.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$33,072,896,304||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.38||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||10.66%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||31.56||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||14.75||Fail|
|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||1.38||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||3.63||Fail|
|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||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||2.28%|
|MG Value based on 3% Growth||$29.16|
|MG Value based on 0% Growth||$17.10|
|Market Implied Growth Rate||11.53%|
|% of Intrinsic Value||241.68%|
SYSCO Corporation does not satisfy the requirements of 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 has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.75 in 2014 to an estimated $2.01 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.53% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into SYSCO Corporation revealed the company was trading above its Graham Number of $16.15. The company pays a dividend of $1.3 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 31.56, which was above the industry average of 31.56. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.56.
SYSCO Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$14.56|
|Number of Consecutive Years of Dividend Growth||20|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2017|
|Total Current Assets||$8,272,168,000|
|Total Current Liabilities||$5,982,970,000|
|Shares Outstanding (Diluted Average)||527,250,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.61|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.01|
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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 review our detailed disclaimer.