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Why Sysco (SYY) Stock Should be Part of Your Portfolio


You should take a look at Sysco Corporation SYY as the stock is performing well on the back of its brand strength, strategic initiatives and solid earnings history.

A glance at Sysco’s share price performance shows that it has outperformed the Zacks categorized Food-Miscellaneous/Diversified industry despite persistent food-cost deflation hurting the overall industry. Over the past one year, this Zacks Rank #3 (Hold) company’s shares increased 11%, while the industry gained 0.4%. We believe that there is still momentum left in the stock, as evident from its VGM Score of “A” and long-term earnings growth rate of 8.7%.

Let’s Delve Deeper

Armed with a robust business portfolio, Sysco also has a sales force of marketing associates and multi-regional presence in the U.S. and Canada. Further, its efforts to explore opportunities to provide new and improved products, technologies and services to its customers are expected to help the company retain customers, alongside boosting profitability.

Meanwhile, Sysco has been carrying out various acquisitions over the years to grow its distribution network and customer base as well as boost long-term growth. Evidently, the company is gaining from its Brakes Group acquisition. The acquisition is anticipated to be modestly accretive to earnings per share by low to mid-single digits in fiscal 2017, with acceleration in fiscal 2018 and beyond. Further, the combined companies are expected to generate sales of approximately $55 billion annually.

Additionally, Sysco has been impressively managing expenses and is making progress in both the SG&A and supply chain areas. Further, improvement in gross margin is another key driver of Sysco achieving its three-year targets. Notably, Sysco has delivered positive gross margins in the last seven quarters, when it reported second-quarter fiscal 2017 results. Besides, the company also undertakes shareholder-friendly moves.

Coming to Sysco’s financial performance, its earnings have outpaced the Zacks Consensus Estimate for five straight quarters, with a trailing four quarters average of 9.3%. In the second quarter, the bottom line also increased year over year driven by sales growth, expense management as well as improved gross and operating margins.

However, Sysco’s sales missed the Zacks Consensus Estimate in six of the past eight quarters, including the second quarter. We note that the grocery/supermarket business has been grappling with food deflation, stiff competition, aggressive promotional environment and waning store traffic, which has been hurting its sales lately. Going ahead, the deflationary trend is likely to continue in fiscal 2017, thereby creating modest sales and gross profit headwind. Also, management anticipates continued industry softness and challenging year-over-year comparisons in the second half of fiscal 2017.

Nonetheless, estimates have been largely stable ahead of the company’s third-quarter earnings release. In fact, the Zacks Consensus Estimate for the fiscal third quarter and fiscal 2017 are currently pegged at 51 cents and $2.46, respectively.

Stocks that Warrant a Look

Better-ranked stocks in the same industry include Pinnacle Foods Inc. PF, Treehouse Foods, Inc. THS and Lamb Weston Holdings, Inc. LW, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pinnacle Foods, with a long-term earnings growth rate of 8.3% has increased 29.8% in the past one year.

Treehouse Foods, with a long-term earnings growth rate of 15.2% has jumped 24.6% year to date.

Lamb Weston Holdings, with a long-term earnings growth rate of 4.2% surged 39.2% in the past six months.

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