When you drive by a truck that says Sysco (SYY - Get Report) on the side, pay attention -- it may have your dinner in it. Sysco is the standard bearer in the food service distribution business, supplying everything from ingredients to par-cooked entrees to menu analysis services to 400,000 restaurants, hotels and institutional dining facilities.
Short sellers have lost their appetite for this stock, pushing its short interest ratio to 9.7, a level that indicates it would take two full weeks of buying at current volume levels for shorts to exit their positions.Sysco is another example of the network effect in action. The firm's focus on cost across its supply chain means that it can move products to its customers far cheaper than peers can, an advantage that boosts profitability and gives Sysco more pricing power. It also means that there are some pretty huge advantages in shoving more stuff on those trucks. Because the routes already exist, cross-selling more products and services to SYY's existing customer Rolodex offers an easy way to earn growth. To be sure, there are some risks in Sysco. The rising cost of soft commodities and trends toward locally sourced products at many restaurants are a couple of the headwinds that short sellers are latching onto. But Sysco's financial performance has been rising steadily over the past few years, and a dividend hike looks likely in the next quarter. Those factors increase the possibility of a short squeeze in the near-term.