Sysco is the biggest company in foodservice market. Company distribute products and equipment to restaurants, healthcare, hotels and many more places. Sysco operates in North America.


Company operates in highly competitive market, which can be seen in low operating margins. Margins are in long term downward trend. Sysco implemented three-year financial goals to improve it. By now I see some positive changes in margin in last quarters, but mainly due to low oil prices – significant cost in distribution business.


Overall market is growing in low single digit numbers. Inflation in food prices would be beneficiary for company.

Consumer in US is strong and so is restaurant business. Not a good time to buy shares of distributor.


As it comes to financials (estimates):

Market cap ~ $25B

Net debt ~$4B

Payout ratio ~63%

Return on equity ~16%

Beta = 0.6

Dividend yield 2.7% + buyback $1.5b/year (estimate, buyback yield around 6%), but buyback funded with debt, in my opinion it is not a good indicator taking into account current high share price


Estimated valuation ratios:


P/E = 23


Sysco (SYY) is one of The Dividend Aristocrats with a history of increasing dividend payments since 1971 year. Currently dividend yield is around 2.7%, which is OK, but taking into account slow growth it is nothing special (WMT is also paying around 3%). Historically SYY was paying around 4-5% – that is a perfect time to buy shares.


Drawdown risk analysis:


Currently shares trade around all-time high level. I am not interested in buying shares at such situation. Moreover valuation is high, dividend yield OK, but nothing special + buyback from debt. If I think that shares are overpriced then how can I like debt-founded buyback? I will reconsider at $33.


Summing up, I love Sysco for stable business and strong cash generation, but I do not feel it is a right time to buy shares.


Disclaimer SYY – no position