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For this week’s sector spotlight, I wanted to take a look at a Consumer Discretionary Sector-based stock, Sysco Corp. (NYSE: SYY).
It’s always interesting because when I hear people say they invest in Sysco, I often have to ask which one. Because you have the Cisco Systems Inc. (NASDAQ: CSCO) which is in the Informational Technology sector, but then you have Sysco Corp. (NYSE: SYY).
And Sysco Corp. has a distinction of being a Dividend King.
Sysco is the global leader in selling, marketing and distributing food and non-food products to restaurants, healthcare and educational facilities, lodging establishments and other customers around the world.
To put it bluntly, Sysco Corp. is the largest wholesale food distributor in the United States.
Founded in Houston, Texas in 1969, the company serves 600,000 locations with food delivery including restaurants, hospitals, schools, hotels and other facilities.
By 1996, Sysco was the third largest company in Houston and in 1999, Sysco acquired Newport Meat Company which generated a yearly revenue of $100 million supplying meat to over 1,000 restaurants.
By 2002, Sysco purchased SERCA Foodservices, by 2003 Sysco purchased Asian Foods, the largest Asian foods distribution in North America. In 2009, Sysco acquired Pallas Foods, the largest distributor in Ireland.
In 2013, Sysco had announced an $8.2 billion acquisition of its rival, US Foods. But the FTC challenged the acquisition as a violation of the Clayton Antitrust Act that would lessen competition, as Sysco-US Foods would control 75% of the US food service industry and would stifle competition. So, Sysco terminated the merger.
The company ranked #54 in the 2018 Fortune 500 list of the largest US corporations by total revenue.
Currently Sysco Corp has shown amazing growth from 1980 to the present, which is currently as $75.68 (as of June 29th closing).
It’s largest dip was primarily during the Pandemic, dropping the stock to a little over $30.
The 52 week range was from $50.03 to $86.73. The company’s market cap is $38.7 billion and an enterprise value of $46.6 billion with 511.6 million shares outstanding. 80% of the shares are held by institutions.
Morningstar currently has the stock at two stars which is overvalued and in May 22, 2021, the fair value estimate was $65 (when a share was $80.51).
While Schwab Equity Rating has it at as a C and a percentile ranking of 47, rated as a “Hold” but also set at “High” for price volatility.
It’s reasoning for the C grade is because the negative outlook on growth but does give it an A for Quality.
Fidelity’s S&P Global Market Intelligence has it set at 44, right in the middle for overvalued and undervalued. With an 80 ranking for quality. And 68 rating for growth stability. But gave it a 26 towards “less healthy”.
source: schwab.com
The current quarterly dividend is $0.47 ($1.88 annually). The annual dividend yield is currently at 2.47% and as a Dividend King, increased from $1.56 in 2019 to $1.80 in 2020.
But going back to the rating, part of the reason is due to how restaurants were affected by the Pandemic. Many states started to open up and we are starting to see normalcy where people can eat door in restaurants, so one can see growth for Sysco Corp. But with the Delta Variant now in the forefront on the news, will restaurants be facing a new wave of rules and closures that may affected restaurants? Time will tell, as we approach fall/winter.
And it doesn’t help that commodity prices are moving higher and with the worry about inflation, Sysco Corp.and their clients may be affected. Let alone, labor shortages, which is affecting restaurants throughout the US.
So, it’s hard to say where things will go six months from now, but I do know that Sysco Corporation is one of the largest companies in the country, a Dividend King and a company that has shown consistency in growth (not inc. the pandemic 2020)..
I’m long on SYY and I’m definitely going to hold and add more shares to my portfolio. It’s one of my favorite stocks in my Consumer Staples Sector.
As always, perform your due diligence and do a lot of research before investing. Talk to a financial advisor and find out if Sysco Corp. (NYSE: SYY) would be a perfect investment for you.
