NEW YORK (TheStreet) -- Sysco Corp. (SYY) was downgraded to "hold" from "buy" at Deutsche Bank on Tuesday morning. The firm said it lowered its rating on the food distributor based on a valuation call following the cancelation of the US Foods merger deal.
On Monday, Sysco announced it abandoned the merger deal with US Foods after the FTC blocked the deal on concerns it would be anticompetitive.
"We believe Sysco's risk/reward is less attractive after yesterday's announcement," Deutsche Bank said in an analyst note.
Deutsche Bank has a $40 price target on Sysco stock.
"Specifically, our downgrade is based on valuation...the potential for a more competitive landscape in the near term, the reality that future cost savings could be smaller than we hoped for...and the buyback is less meaningful than we had hoped for," the note continued.
Shares of Sysco closed at $37.54 on Monday afternoon.
Separately, 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 some important positives, 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 5.0%. 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. The firm also exceeded the industry average cash flow growth rate of -24.48%.
- 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 ($1.83 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