SYY: Sysco Stock Best Left Out of Your Portfolio Basket

by Louis Navellier | February 4, 2014 9:37 am

Welcome to the Stock of the Day.

SyscoLately, we have all been seeing higher prices at the grocery store, and while that puts the squeeze on consumers’ wallets, higher food prices also affect the profit margins of food suppliers as well. We saw as much with Sysco’s (SYY[1]) lukewarm earnings announcement on Monday.

With Sysco stock shares down on the news, can it bounce back? Find out here.

Company Overview

Sysco, which stands for Systems and Services Company, is a food distributing giant with more than 400,000 clients and 48,100 employees. Although it is best known for supplying meat and seafood products as well as specialty foods to institutional client, Sysco also offers management consultant services.

Sysco brought in over $44 billion in sales for FY 2013 and its main competitors are privately-held Meadowbrook Meat Company Inc., Performance Food Group Co. and U.S. Foodservice Inc.

Earnings Buzz

In its fiscal second quarter, Sysco dealt with 1% food cost inflation, driven largely by higher seafood prices. The company also reported that this was a challenging quarter for its customers in the restaurant industry.

Compared with the same quarter last year, sales climbed 4% to $11.24 billion, which missed the $11.35 billion consensus estimate. Over the same period, net earnings inched down to $210.84 million, or 36 cents per share. Excluding special items, adjusted earnings were 40 cents per share, matching analyst estimates.

Future Outlook

The mixed earnings announcement caused shares of Sysco stock  to open lower on Monday and I’m not convinced we’re going to see a meaningful bounce anytime soon. That’s partly due to the overall lackluster estimates for Sysco heading into the second half of FY 2014.

This quarter, analysts forecast 5.1% sales growth and 5% earnings growth–this pales in comparison to competitors like Tyson Foods (TSN[2]), which is headed towards over 69% annual earnings growth this quarter. Sysco is expected to see sales and earnings growth in the low single digits through the end of FY 2014.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader[3] ratings system. All-in-all, this company has mediocre fundamentals; it is C-rated in terms of sales growth and earnings growth and D-rated in terms of operating margin growth.

Sysco Corp.’s only strong suits are its A-rated return on equity and its B-rated earnings momentum. So this stock receives a C-rating for its Fundamental Grade. And due to anemic buying pressure SYY currently receives a C-rating for its Quantitative Grade.

Bottom Line: As of this posting I recommend that you hold off on buying shares of SYY for now.

  1. SYY:
  2. TSN:
  3. Portfolio Grader:

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