Food Processing Stocks

Sysco Corp Valuation – May 2018 $SYY

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.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SYY – May 2018

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 $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

EPSmg $2.01
MG Growth Estimate 2.28%
MG Value $26.27
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $29.16
MG Value based on 0% Growth $17.10
Market Implied Growth Rate 11.53%
Current Price $63.48
% 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
Graham Number $16.15
PEmg 31.56
Current Ratio 1.38
PB Ratio 14.75
Current Dividend $1.30
Dividend Yield 2.05%
Number of Consecutive Years of Dividend Growth 20

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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
Long-Term Debt $8,312,489,000
Total Assets $18,219,370,000
Intangible Assets $5,057,355,000
Total Liabilities $15,950,768,000
Shares Outstanding (Diluted Average) 527,250,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.61
Jun2017 $2.08
Jun2016 $1.64
Jun2015 $1.15
Jun2014 $1.58
Jun2013 $1.67
Jun2012 $1.90
Jun2011 $1.96
Jun2010 $1.99
Jun2009 $1.77
Jun2008 $1.81
Jun2007 $1.60
Jun2006 $1.36
Jun2005 $1.47
Jun2004 $1.37
Jun2003 $1.18
Jun2002 $1.01
Jun2001 $0.88
Jun2000 $0.67
Jun1999 $0.54
Jun1998 $0.43

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.01
Jun2017 $1.68
Jun2016 $1.52
Jun2015 $1.52
Jun2014 $1.75
Jun2013 $1.84
Jun2012 $1.91
Jun2011 $1.89
Jun2010 $1.80
Jun2009 $1.67
Jun2008 $1.59
Jun2007 $1.45
Jun2006 $1.34
Jun2005 $1.28
Jun2004 $1.14
Jun2003 $0.96
Jun2002 $0.81

Recommended Reading:

Other ModernGraham posts about the company

Sysco Corporation Valuation – January 2017 $SYY
Sysco Corporation Analysis – September 2015 Update $SYY
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

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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 review our detailed disclaimer.

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