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.

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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.

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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:

EV/EBITDA = 12

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:

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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