This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Sysco (SYY) Popped on Monday

NEW YORK (TheStreet) -- Sysco Corporation (SYY - Get Report) settled from earlier highs of over $40 following news it had agreed to purchase U.S. Foods in a deal with total enterprise value of around $8.2 billion.

By mid-afternoon, the food retailer and distributor was trading up 9% to $37.41.

Sysco agreed to pay $3 billion in cash and $500 million in stock and by close, equity holders of U.S. Foods will own 87 million shares, or 13% of the company. U.S. Foods' majority shareholders include affiliates of Clayton, Dublier & Rice and Kohlberg Kravis Roberts (KKR - Get Report), a representative of each to join the Sysco Board of Directors after the deal's close.

The acquisition, expected to be finalized in the third-quarter of next year, will create a company with estimated combined annual sales of $65 billion and realize annual synergies of $600 million as early as 2017.

On a conference call Monday morning, Chief Executive said Sysco's current 18% share of the food distribution market will benefit from the addition of U.S. Foods' 9% share. 

Despite the creation of an industry powerhouse, Moody's Investors Service has placed all ratings of Sysco on review for downgrade due to its assumption of $4.7 billion of U.S. Foods' debt. 

Must Read: This Buy-Rated Semiconductor is Worth a Look Today

"While Moody's believes the transaction makes strategic sense, and the pricing at around 10 times EBITDA seems reasonable given synergy potential, the immediate impact on Sysco's credit metrics from the debt component will result in a level of deterioration that will likely lead to a downgrade," explained Moody's Vice President Charlie O'Shea in a press release

TheStreet Ratings team rates Sysco Corp as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Sysco Corp (SYY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.7%. Since the same quarter one year prior, revenues slightly increased by 5.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.60, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.97 is somewhat weak and could be cause for future problems.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Sysco Corp's earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, Sysco Corp reported lower earnings of $1.68 a share vs. $1.91 a share in the prior year. This year, the market expects an improvement in earnings ($1.86 vs. $1.68).
Also see : The  10 Drunkest States   in America... and the  10 Most Sober .

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
KKR $13.60 0.00%
SYY $46.07 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs