NEW YORK (TheStreet) -- Shares of Sysco Corp. (SYY) are down 1.49% to $37 in pre-market trade after it was reported that the FTC is considering a possible antitrust lawsuit to block the planned merger of Sysco and US Foods Inc., concerned that combining the nation's two biggest food suppliers to restaurants, schools and other institutions could threaten competition, sources told the Wall Street Journal.
The FTC, which has been investigating the merger for several months, is weighing other alternatives, such as requiring Sysco and US Foods to divest assets to competitors, sources added.
The commission hasn't yet decided whether to challenge the deal but a decision could come within weeks, sources told the Journal. Sysco announced plans in December to buy US Foods for $3.5 billion
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, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- SYY's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 5.9%. 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, 0.52, 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 0.87 is somewhat weak and could be cause for future problems.
- SYSCO CORP's earnings per share declined by 8.5% 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 $1.58 versus $1.68 in the prior year. This year, the market expects an improvement in earnings ($1.90 versus $1.58).
- 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.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Food & Staples Retailing industry and the overall market, SYSCO CORP's return on equity exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SYY Ratings Report