SYSCO (SYY) is the distributor king in the food-service industry. Annual revenue, driven by the restaurant business, exceeds $60 billion, observes Stephen Mauzy, editor of Wyatt Research's Personal Wealth Advisor.
The company distributes a wide array of food products: frozen foods, fully prepared entrees, fruits, vegetables, canned and dry foods, fresh meats, dairy, beverage products, and imported specialties.
Acquisitions have kept revenue growing at a 5% average annual rate over the past 10 years. Earnings per share (EPS) have grown at a 7% average annual rate over the same period. Growth, as you might expect, will take a holiday in fiscal-year 2020 (which ends June 30).
SYSCO is uniquely positioned among food-service providers to build market share in a post-COVID-19 world. The sales team is already working to tap new accounts while expanding existing ones. SYSCO’s scale and liquidity should yield a relatively rapid rebuild of operations and inventory.
SYSCO is the dominant player in an essential industry. It sports the strongest balance sheet in the business. It can boast of a long record of generating value for shareholders through continual share buybacks. Management indicated that even under the most draconian downturn, the company has the financial resources to weather this storm.
SYSCO has 49 years of annual dividend growth to its name. The dividend has grown at a 9% average annual rate for the past 10 year. The sell-off in SYSCO shares since the country-wide lock-down began in March has lifted the starting dividend yield to 3.5% — a high by historical norms.
Long-term, we know the restaurant industry will be resurrected (even if all participants won’t be). SYSCO’s fortunes will be resurrected, as well. I expect SYSCO to post incremental improvement through the second half of the year as the economy continues to open to more businesses.
I have a $69 per share 12-month price target. My price target assumes SYSCO’s outlook will improve sufficiently heading into fiscal-year 2022 (July 2021) to warrant the historical average 18.9 multiple to forward earnings.
I expect EPS to post at $3.10 for fiscal-year 2021 and $3.65 for fiscal-year 2022. The multiple applied to expectations for next gives us our price target and our opportunity today.
