Sysco (SYY) posted a fiscal first quarter 2017 profit statement Monday that outstripped even the exuberant expectations established by its rock solid performance over the last year, a period that saw the food products distributor swing from milestone event to event without apparently losing focus on its fundamentals.
EPS jumped 20% year over year, and came in well ahead of Wall Street's forecasts of 58 cents a share at an adjusted 67 cents a share. As a result, the stock has climbed as much as 11% in Monday's afternoon trading to $53 a share. Sales next year are expected to grow to $54.7 billion from $50.4 billion in fiscal 2016, cementing Sysco's position as the leading national food products distributor by a wide margin.
The stock's forward valuation rings in at 20 times its multiple, actually something of a discount to the multiples it's commanded over the last several years. However, the stock's $53 price tag, including Monday's surge, easily tops the fair value estimated at about $45 a share, according to Morningstar. And it's tough to see what catalysts on the short term horizon are going to give the stock a further boost from the current valuation.
Fundamentally, there are a couple of knocks on the Sysco story. The overwhelming majority of its sales go to small restaurant customers. Not only do these enterprises multi-source their ingredients and supplies from a variety of vendors on a routine basis, but the restaurant economy tends to be rather lumpy. It could take an upswing assuming the economy continues to improve, and consumers feel comfortable returning to pre-financial crisis discretionary spending levels. But the opposite is just as likely true.