Sysco (SYY) Stock Gains After Analyst Upgrade, Price Target Increase

NEW YORK (TheStreet) -- Shares of Sysco Corp. (SYY) closed up 1.92% to $38.21 on Tuesday after analysts at Credit Suisse today upgraded the company to "outperform" from "neutral" and raised their price target to $43 from $38.

Analysts said that the biggest U.S. food distributor's stock risk/reward has turned more positive.

"While the company's attempted acquisition of U.S. Foods remains highly uncertain, we see upside in the stock at the current price with or without the deal," they added. Of course if the deal were completed, analysts highlighted that it would prove beneficial for the stock due to consolidation gains.

The court decision regarding the merger is expected in June.

However, regulatory filings show that Sysco will be left with a bill of around $1 billion if the U.S. government kills its $2.5 billion merger with U.S. Foods, underscoring the perils of doing deals that have a good chance of being blocked by antitrust regulators, Reuters reported.

TheStreet Ratings team rates SYSCO CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate SYSCO CORP (SYY) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins."

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

  • SYY's revenue growth has slightly outpaced the industry average of 0.3%. Since the same quarter one year prior, revenues slightly increased by 4.2%. 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.
  • Net operating cash flow has slightly increased to $408.06 million or 4.65% when compared to the same quarter last year. Despite an increase in cash flow, SYSCO CORP's cash flow growth rate is still lower than the industry average growth rate of 20.45%.
  • SYSCO CORP' 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 $1.58 versus $1.68 in the prior year. This year, the market expects an improvement in earnings ($1.84 versus $1.58).
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Food & Staples Retailing industry average. The net income has decreased by 2.2% when compared to the same quarter one year ago, dropping from $180.94 million to $176.96 million.
  • In its most recent trading session, SYY has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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 Ratings Report

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