Sysco (SYY) Stock Will Deliver Further Gains

We can see a strong rally that started in early August when many other names were plunging.
By Bruce Kamich ,

NEW YORK (TheStreet) -- Here's a stock market homophone -- two stocks that sound the same but are quite different. What do you think of Sysco? No, not Cisco Systems (CSCO) but rather Sysco (SYY) - Get Report , the food service company.

In the chart of SYY, above, we can see a strong rally that started in early August when many other names were plunging. This chart also shows a golden cross of the 50-day and 200-day moving averages -- a late call but can still be effective with long trends. The On-Balance-Volume (OBV) line is nothing to write home about.

The chart of SYY, above, shows a strong upward trend to prices and the upward slope of the 40-week moving average. The OBV line rising supports the bull case as we don't see bearish divergences between higher prices and the momentum indicator. We look for further gains in SYY in the weeks ahead.

TheStreet Ratings team rates SYSCO CORP as a Buy with a ratings score of A-. TheStreet Ratings 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 and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

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

  • SYY's revenue growth has slightly outpaced the industry average of 3.7%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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 current debt-to-equity ratio, 0.58, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.99 is somewhat weak and could be cause for future problems.
  • SYSCO CORP's earnings per share declined by 12.8% in the most recent quarter compared to the same quarter a year ago. 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 $1.16 versus $1.58 in the prior year. This year, the market expects an improvement in earnings ($1.94 versus $1.16).
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the Food & Staples Retailing industry average. The net income has decreased by 12.3% when compared to the same quarter one year ago, dropping from $278.81 million to $244.42 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: SYY

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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