Sysco Cooks Up a Storm of Interest

The Buffett strategy looks for stable, predictable earnings, something Sysco definitely delivers. For the last 10 fiscal years (its most recent fiscal year ended June 30, 2005), it has produced earnings per share that have increased, without interruption. And it has been a nice increase. Based on the average of the three-, four- and five-year historical growth rates, earnings per share have grown 14.5% a year, and are expected to grow 13.6% a year in the future.

Also sought under this methodology are conservatively financed companies. Sysco could pay off its debt in less than two years, which is exceptional.

Return on equity should be at least 15%, says the strategy, while Sysco's, over the last 10 years, has been a very strong 27.4%.

For a high level of comfort with an investment, the Buffett strategy wants the return on equity to be at least 10% for each of the last 10 years. Sysco's has never dropped below its 1996 nadir of 18.3%. And ever since then, ROE has been above 20%; during the past four fiscal years, has exceeded 30% a year.

Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, the Buffett strategy also requires that the average return on total capital be at least 9% over the last 10 years. Sysco's has never dipped below 13.1% and for each of the last four years, has been about 20% or more. In fact, Sysco's average for the last 10 years has been 18.1%.

No wonder a strategy based on such a picky stock picker as Buffett likes Sysco so much; these are impressive numbers.

The quality of a company and its earnings are important, but good grades for financial performance are not enough -- the price has to be acceptable, too. This is measured by the Buffett strategy by studying the rate of return the investor can expect. To this end, the strategy uses two different analyses and then averages them. These analyses produced expected rates of return of 14.7% and 16.2%, for an average of 15.4%. That's impressive, and one the Buffett strategy would be very happy to earn.