The stock of Sysco Corp (SYY, Financial) has seen a daily gain of 2.71%, with a 3-month gain of 0.5%. With an Earnings Per Share (EPS) (EPS) of 3.47, the question arises: is Sysco (SYY) modestly undervalued? In this article, we delve into the company's valuation, financial performance, and future prospects. Let's dive into our comprehensive analysis.
Company Overview
Sysco is the largest U.S. food-service distributor, with a 17% market share of the highly fragmented food-service distribution industry. It distributes over 400,000 food and nonfood products to various sectors, including restaurants, healthcare facilities, education and government buildings, travel and leisure, and other locations. As of fiscal 2023, 70% of the firm's revenue was derived from its U.S. foodservice operations. The stock is currently priced at $73.14 per share, with a market cap of $36.90 billion. The GF Value, a measure of the stock's intrinsic value, is estimated at $101.59, indicating that Sysco (SYY, Financial) may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the fair value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this calculation, Sysco's stock is estimated to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength Analysis
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Sysco has a cash-to-debt ratio of 0.07, which ranks worse than 84.82% of companies in the Retail - Defensive industry. Based on this, GuruFocus ranks Sysco's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Sysco has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $76.30 billion and Earnings Per Share (EPS) of $3.47. Its operating margin of 3.98% is better than 61.67% of companies in the Retail - Defensive industry. Overall, GuruFocus ranks Sysco's profitability as strong.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth rate of Sysco is 13.3%, which ranks better than 76.49% of companies in the Retail - Defensive industry. The 3-year average EBITDA growth rate is 32.2%, which ranks better than 84.13% of companies in the Retail - Defensive industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Sysco's ROIC was 17.28, while its WACC came in at 8.24.
Conclusion
In conclusion, the stock of Sysco (SYY, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 84.13% of companies in the Retail - Defensive industry. To learn more about Sysco stock, you can check out its 30-Year Financials here.
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