Linked here is a PDF copy of my analysis of Sysco Corp (SYY) (alt.1, alt.2). Below are some highlights from the above linked analysis:Company Description: SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for food service industry in the United States and Canada.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. SYY is trading at a discount to two of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, SYY is trading at a 9.8% premium. SYY gets a Star for being fairly valued. However, since it is trading at a premium, there are some mixed signals here.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. SYY scored a grand-slam home run in this section, earning all 4 available Stars. This is the type of performance I look for in my dividend stocks.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. SYY earned a Star for 1.) above with a $19,472 (per $1,000 invested) 20-year NPV differential to a MMA earning 5.11%.
Other: SYY raised its dividend in 2008 to $0.22/share from $0.19/share in 2007. This is a 15.8% increase. I like to see increase in excess of 15% - at that level a stock's yield on cost will double every 5 years. From S&P: We expect results of this leading U.S. food distributor to include both internal growth and additional acquisitions, with SYY increasing its market share. Over time, we look for SYY's profitability to benefit from an increased amount of consolidated purchasing, the addition of regional distribution centers, improved management of freight costs, and better inventory management.
Conclusion: SYY earned one Star in the Fair Value section, a perfect four Stars in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a total of Six Stars, one more than my scale allows, which rates it as a 5-Star Strong Buy. Even at these valuations, I plan to add to my position in SYY during 2008.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of SYY in my IRA.
What are your thoughts on SYY?
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