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Sysco (SYY): 5 Reasons to Add the Stock to Your Portfolio Now

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The Q2 earnings season is almost over across the sectors. While majority of the companies posted better-than-expected results with respect to both earnings and revenues, earnings declined on a year-over-year basis. Notably, this was the fifth quarter in a row to display a declining trend in earnings.

Though we witnessed strong jobs report for July, a jump in new-home sales and a surge in durable goods orders; investors have become jittery after Brexit, which shook the global economy in Jun 2016. Further, the uncertainty surrounding the interest rate hike by the Fed has made investors cautious about the stock market. Given these macroeconomic uncertainties, investors are predictably resorting to safe haven stocks. In such a scenario, the consumer staples sector might be quite reliable.

Consumer Staples Provides Stability

The consumer staple sector fared well in the second quarter of 2016. Lower gas prices and increasing consumer confidence did the trick for the stocks in this space. In fact, it should be kept in mind that the consumer staples sector has the potential to face the headwinds stemming  from continued Federal Reserve uncertainty, global market turmoil and continued volatility in the equity market.

SYSCO CORP Price and Consensus

 

SYSCO CORP Price and Consensus | SYSCO CORP Quote

Let us focus on one consumer staples stock – Sysco Corp. (SYY - Free Report) – which can be a good choice for investors, amid global issues.

Why is Sysco a Good Choice?

Low Beta Stock: Sysco has a beta of 0.61. A stock with less than 1 beta suggests that the price movement is not highly correlated with the market. Being less volatile than the market, they are safer bets at the moment.

Rank and Estimates: Five out of six estimates for Sysco – a Zacks Rank #1 (Strong Buy) stock – have moved north for 2016 over the past 30 days.

Quarterly Results: Sysco’s fourth-quarter and fiscal 2016 earnings beat the Zacks Consensus Estimate, while revenues marginally missed the same. Results may have been impacted by Brexit uncertainties and currency woes. The company’s focus on acquisitions and margin improvement probably resulted in the earnings beat.

Earnings increased double-digits on the back of expense management and improved margins. Revenues grew 10% on a year-over-year basis, as volume growth was offset by unfavorable currency.

Expense Management Initiatives to Reduce Costs: Sysco is targeting at least $500 million in annual operating income growth by 2018. It also intends to grow earnings per share faster than operating income. The company stated that this operating income growth will be driven by a reduction in administrative costs. It has already eliminated about $700 million in annual costs over the past three years. In Mar 2016, Sysco announced the layoff of approximately 2% of its workforce, which translates to around 1,200 positions, over the next 15 months, which would help in reducing costs. Further, the company aims to increase deliveries to local, independent restaurants amid heightened competition.

Strategic Acquisitions: Sysco has been undertaking various acquisitions over the years to expand its distribution network and customer base, and boost long-term growth.

On Jul 7, Sysco completed the $3.1 billion acquisition of London-based Brakes Group, which will expand the global food product maker’s footprint in Europe. Moreover, the acquisition is expected to be modestly accretive to adjusted earnings per share by low to mid-single digits in fiscal 2017, with acceleration in fiscal 2018 and beyond. On Jul 5, Sysco announced the acquisition of an innovative e-commerce platform, Supplies on the Fly. This platform will allow Sysco customers to place orders for more than 170,000 products online or by telephone. In Feb 2016, Sysco agreed to acquire North Star Seafood, which distributes high-quality fresh and frozen seafood to a combination of local, wholesale, cruise, export and retail customers throughout Florida.

Last year, Sysco acquired 50% stake in Mexico-based Pacific Star Foodservice, which provided it with access to distribution centers where the latter is the leading distributor. The company also announced the acquisition of Tannis Trading in Canada, which will allow it to expand sales in Canada. In Sep 2015, Sysco’s wholly owned subsidiary, Guest Supply acquired Gilchrist & Soames, one of the leading luxury personal care amenity providers, which has a solid customer base in the hospitality industry. The acquisition of Gilchrist & Soames' renowned brands not only complemented Guest Supply's products, but also expanded its luxury personal care offerings for hotels, resorts and spas.

Other Key Picks

Other well-positioned food companies include Ingredion, Inc. (INGR - Free Report) , Omega Protein Corp. and Cal-Maine Foods (CALM - Free Report) . While Ingredion and Omega hold the same Zacks Rank as that of Sysco, Cal-Maine Foods carries a Zacks Rank #2.

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