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Sysco (SYY) Shares on the Rise: What's Behind the Uptrend?
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Sysco Corp. (SYY - Free Report) looks quite promising buoyed by its impressive earnings history and solid growth strategies. The food company reported better-than-expected first-quarter fiscal 2017 earnings, while revenues were in line with the Zacks Consensus Estimate. In fact, the company has delivered positive earnings surprises in four consecutive quarters, translating to an average positive surprise of 11.7%. Notably, the stock has surged a significant 34.5% year-to-date, clearly outperforming the Zacks categorized Food-Miscellaneous/ Diversified Market industry, which noted growth of 6.1%. Also, it exhibits long-term earnings growth rate of 8.8%, with a VGM Score of “B,” instilling confidence about its momentum.
Driven by these factors, this Zacks Rank #2 (Buy) company hit a 52-week high of $55.29 on Dec 9, though it eventually closed at $55.15. Moreover, estimates have also been witnessing an uptrend. Over the past 60 days, the Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 increased 4.8% and 1.5%, respectively to $2.41 and $2.66 per share.
We note that Sysco has been consistently showcasing an improvement in sales, driven by acquisitions and volume growth. The buyouts of London-based Brakes Group and Supplies on the Fly e-commerce platform are encouraging.
Further, it seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are yielding results. Sysco has delivered positive gross margin in the last six consecutive quarters, after continuous declines since the last two fiscal years. Activist investor Trian Fund Management has also increased its stake in the company.
Additionally, Sysco has a consistent track record of returning cash to shareholders in the form of dividend payments. The company has increased its dividend 48 times since its establishment in 1970. The latest dividend increase of 6%, announced on Nov 18, was above management’s projection of a forward five-year dividend growth rate of 3%–5%.
However, persistent food-cost deflation remains a concern since the past few quarters. The company has experienced continued deflation in center-of-the-plate protein categories, such as meat and seafood, as well as in dairy. This deflationary trend is likely to continue in 2017, creating a modest sales and gross profit headwind.
The restaurant industry, which represents approximately 60% of the food service market, is experiencing soft growth in recent quarters. Restaurant traffic continues to show year-over-year declines and restaurant spend has decelerated as well. As a result, the company anticipates modest case volume growth in the upcoming quarters.
We expect the aforementioned factors to help the stock sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as the rest is a wait-and-watch story.
Mondelez International has an expected earnings growth rate of 13.12%. Further, it has delivered positive earnings surprises in three out of the trailing four quarters, leading to an average earnings surprise of 11.20%. While Lancaster Colony has an expected earnings growth rate of 3.00%, Ingredion has a growth rate of 11.0%.
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Sysco (SYY) Shares on the Rise: What's Behind the Uptrend?
Sysco Corp. (SYY - Free Report) looks quite promising buoyed by its impressive earnings history and solid growth strategies. The food company reported better-than-expected first-quarter fiscal 2017 earnings, while revenues were in line with the Zacks Consensus Estimate. In fact, the company has delivered positive earnings surprises in four consecutive quarters, translating to an average positive surprise of 11.7%. Notably, the stock has surged a significant 34.5% year-to-date, clearly outperforming the Zacks categorized Food-Miscellaneous/ Diversified Market industry, which noted growth of 6.1%. Also, it exhibits long-term earnings growth rate of 8.8%, with a VGM Score of “B,” instilling confidence about its momentum.
Driven by these factors, this Zacks Rank #2 (Buy) company hit a 52-week high of $55.29 on Dec 9, though it eventually closed at $55.15. Moreover, estimates have also been witnessing an uptrend. Over the past 60 days, the Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 increased 4.8% and 1.5%, respectively to $2.41 and $2.66 per share.
SYSCO CORP Price, Consensus and EPS Surprise
SYSCO CORP Price, Consensus and EPS Surprise | SYSCO CORP Quote
We note that Sysco has been consistently showcasing an improvement in sales, driven by acquisitions and volume growth. The buyouts of London-based Brakes Group and Supplies on the Fly e-commerce platform are encouraging.
Further, it seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are yielding results. Sysco has delivered positive gross margin in the last six consecutive quarters, after continuous declines since the last two fiscal years. Activist investor Trian Fund Management has also increased its stake in the company.
Additionally, Sysco has a consistent track record of returning cash to shareholders in the form of dividend payments. The company has increased its dividend 48 times since its establishment in 1970. The latest dividend increase of 6%, announced on Nov 18, was above management’s projection of a forward five-year dividend growth rate of 3%–5%.
However, persistent food-cost deflation remains a concern since the past few quarters. The company has experienced continued deflation in center-of-the-plate protein categories, such as meat and seafood, as well as in dairy. This deflationary trend is likely to continue in 2017, creating a modest sales and gross profit headwind.
The restaurant industry, which represents approximately 60% of the food service market, is experiencing soft growth in recent quarters. Restaurant traffic continues to show year-over-year declines and restaurant spend has decelerated as well. As a result, the company anticipates modest case volume growth in the upcoming quarters.
We expect the aforementioned factors to help the stock sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as the rest is a wait-and-watch story.
Stocks that Warrant a Look
Some better-ranked stocks in the broader consumer staples sector include Mondelez International, Inc. (MDLZ - Free Report) , Ingredion, Inc. (INGR - Free Report) and Lancaster Colony Corporation (LANC - Free Report) . All of them carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Mondelez International has an expected earnings growth rate of 13.12%. Further, it has delivered positive earnings surprises in three out of the trailing four quarters, leading to an average earnings surprise of 11.20%. While Lancaster Colony has an expected earnings growth rate of 3.00%, Ingredion has a growth rate of 11.0%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>