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Buy this Dividend Aristocrat Stock Before Earnings?

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Sysco Corporation (SYY - Free Report) is a wholesale food and food products firm set to release its fourth quarter and fiscal 2022 financial results on Tuesday, August 9. Sysco shares have climbed 10% in 2022 and it operates one of those nearly recession-proof businesses that only the initial covid lockdowns were able to slow down.

Away From Home Food

Sysco is a diversified wholesale foods company. Its categories on the food side include meat & poultry, seafood, produce, dairy, bakery & desserts, pantry staples, and others. Alongside the actual food and ingredients, SYY sells paper goods, equipment, supplies, and more. And its services segment helps its customers with improved cost-based analysis, new training materials, recipes, and beyond.

As far as its customer base is concerned, Sysco’s clients include restaurants, healthcare, education, hotels, and nearly the entire away-from-home meal market. The diverse business model has made it resilient to most economic cycles. For instance, the only time Sysco’s revenue declined at any point in the past 25 years was a slip in fiscal 2009 and slightly larger pullbacks during covid when some of its clients closed their doors for extended periods.

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Other Fundamentals

SYY’s FY21 (ended on July 3, 2021) sales slipped 3%. But it has bounced back in a big way as people return to their normal lives. Sysco’s Q3 FY22 sales climbed 43% YoY and were up 15% from the pre-covid period in 2019. Sysco raised its guidance in the face of inflation, with it able to pass on higher costs and steer clients to less-impacted segments.

Zacks estimates call for Sysco’s FY22 revenue to surge 32.5% to $68 billion to blow away its pre-covid total in 2019 of $60 billion and lift its adjusted earnings by 124% to $3.23 per share.

Peeking not too far ahead (since it’s about to report its Q4 results), SYY’s revenue is expected to climb another 8.4% in FY23 to come in near $74 billion to help its earnings jump by 34% to $4.32 a share.

In terms of performance, Sysco has matched the S&P 500 over the last 10 years, up roughly 200%, while blowing away its industry’s 42%.

As mentioned up top, SYY is up 10% so far this year and 20% in the past 12 months vs. its industry’s 3% climb and the larger Zacks sector’s 5% run. Sysco closed regular trading Wednesday at $86.40 per share, which provides 11% upside to its current Zacks consensus price target of around $95.

On the valuation front, it’s trading 17% below its 12-month highs at 19.6X forward 12-month earnings. This also comes almost directly in line with its 20-year median of 19.3X.

Bottom Line

Sysco is part of a select group of so-called Dividend Aristocrats which have both paid and raised dividends for at least 25 straight years. There are currently only around 65 members of the S&P 500 that meet these qualifications. SYY’s current 2.3% dividend yield blows away its industry’s average and the S&P 500’s 1.5%.

At the moment, Sysco’s earnings revisions help it capture a Zacks Rank #2 (Buy), and seven of the 10 brokerage recommendations Zacks has are “Strong Buys.”

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