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Sysco (SYY) Hits 52-Week High: What's Behind the Rally?

Zacks Equity Research

Sysco Corporation SYY touched a 52-week high of $78.40, before closing the session slightly lower at $78.28 on Sep 13. Shares of this Houston, TX-based company have rallied approximately 18% in past six months, outperforming the industry’s growth of 11.3%. This Zacks Rank #3 (Hold) stock has also comfortably outperformed the Consumer Staples sector and the S&P 500 Index that advanced 6.7% and 4.8%, respectively, in the said time frame. With a long-term earnings growth rate of 9.5% and a VGM score of B, Sysco is positioned to attain new highs.



Factors Aiding Growth

Sysco’s U.S. Foodservice unit has been performing well for quite some time now. The robust trend continued in fourth-quarter fiscal 2019, wherein sales at this division advanced 2.8% to $10,696 million. Local case volumes within U.S. Broadline operations inched up 1.4% (including organic sales growth of 1.3%) and total case volumes rose 0.4% (wherein organic sales increased 0.3%). Notably, local case volumes in this segment have been rising year over year for 21 consecutive quarters now. Clearly, a favorable economic scenario marked by a strong labor market is likely to continue working in favor of restaurant sales, thereby boosting the U.S. Foodservice segment.

Also, the company is on track with its four core strategies — enhancing consumers’ experience, optimizing business, stimulating the power of its people and achieving operational efficacy. In this regard, it focuses on enhancing assortments, making constant innovations, ensuring food safety and revitalizing brands. Further, to evolve with the changing consumer preferences, Sysco is committed toward investing in technology and enhancing e-commerce operations. Also, the company plans to improve the supply chain, increase transparency, enhance deliveries and manage product costs effectively. Notably, it is on track with its goals and halfway done with its three-year program.

Apart from these, Sysco’s focus on acquisitions is helping it expand its distribution network and customer base. Recently, the company announced the buyout of J. Kings Food Service Professionals. In April, it took over sister firms — J & M Wholesale Meats and Imperio Foods. Earlier, it had also announced a deal to acquire Waugh Foods. Such prudent buyouts are expected to strengthen Sysco’s distribution network.

Wrapping Up

Although Sysco is encountering food-cost inflation and higher supply chain and labor costs, its saving measures are likely to counter the same. Markedly, the company is focused on centralizing its actions, mechanizing work and dealing with offshore partners. Also, Sysco is focusing on its Smart Spending initiatives and is committed toward lowering its overall administrative costs.

We expect these cost-saving measures, along with the aforementioned growth drivers to help the company offset minor hurdles and sustain its solid momentum.

Key Picks

Conagra Brands, Inc. CAG has a long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TreeHouse Foods, Inc. THS delivered average positive earnings surprise of 15.6% in the trailing four quarters. It has a long-term earnings growth rate of 13.8% and a Zacks Rank #2.

MEDIFAST MED, also with a Zacks Rank #2, has delivered positive earnings surprise in the trailing three quarters.

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