Sysco Corporation (NYSE:SYY)

CAPS Rating: 5 out of 5

The Company through its subsidiaries and divisions distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.

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Player Avatar valuemoneygreen (83.76) Submitted: 11/25/2012 3:03:38 PM : Outperform Start Price: $28.41 SYY Score: -2.18

AMERICA'S FOOD DISTRIBUTION TITAN! Why do I like Sysco so much? Well 1st off it supplies about 400,000 customers and has a market cap over 17 billion. So it is big and seemingly not too risky. Sysco is the LARGEST food-service distributor in North America (market leaders are who I like best!), with 17% share of the market. Next closest competitor you ask? U.S. Foodservice with only 9% and then Performance Food Group with just 5% . Sysco has realized returns that are about 3 times the level of its peers.
*ROE 5year average? 29
*ROC 5 year average? 15.5

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Member Avatar valuemoneygreen (83.76) Submitted: 11/25/2012 3:15:07 PM
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I am not done yet!
Shares outstanding on 6/03: 643.66 million
Shares outstanding on 6/12: 585.95 million
Less shares is what I like to see.
Sales went from 26.14 billion in 2003 to 42.38 billion on 6/12
Steady grower is what I like to see.
Net Income went from 778.29 million to 1.12 billion but with less shares that means EPS went up even more.
Like to see earnings steadly go up.
Anyone like dividends? Well these guys have CONSECUTIVE DIVIDED INCREASES of 35 YEARS!!!!
Share price you ask? Wed Sept 1 of 1982 it closed @ $.92 and 30 years later on Wed September 1 2012 it traded @ $30.30
Reinvest the dividends and tell me if your happy with your returns over that period!
Impressed yet?

Member Avatar valuemoneygreen (83.76) Submitted: 11/25/2012 3:20:15 PM
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I am not done yet!
Ever here of Yacktman or Artisan? Well if you don't like it because I think it is a good equity believe them and their ownership and the fact they have recently added to their positions in SYY.
Yacktman Fund 5.2% of port. and adding
Yacktman Focused 5.8% of port. and adding
Artisan Mid Cap Value Fund adding

Member Avatar valuemoneygreen (83.76) Submitted: 11/25/2012 3:32:28 PM
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Lets hit the high points
MARKET LEADER
AWESOME RETURNS ON ROE AND ROC
BASICALLY RECESSION PROOF
HAS INCREASED ITS PAYOUT FOR THE 44TH TIME SINCE ITS 1970 PUBLIC DEBUT

Member Avatar valuemoneygreen (83.76) Submitted: 11/25/2012 3:37:27 PM
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Berkshire should take note of this pitch.....hehe

Disclosure: I own shares of BRK.B but at the time of this pitch I own no shares of SYY.

Member Avatar JohnCLeven (75.47) Submitted: 12/9/2012 8:44:50 PM
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Thanks for the pitch. I'm going to play devil's advocate.

I was wondering if you're concerned at all with SYY's growth? Even using per share data (to factor in those nice buybacks) the growth dosen't look too encouraging .
Operating cash flow per share 8 yr compounded avg growth rate (CAGR) 3.6%
FCF per share 8 yr CAGR 0.61%
EPS 8 yr CAGR 4%

Also, ROE and ROIC, though nice and high, have both been steadily declining over the past 10 years. For example, ROIC was around 23% in 03,04, and 05. It was about 17% in '11, and 15% in this most recent year. That's about a 35% drop in ROIC since 2005. If the ROIC keeps declining at this rate, it won't be long before ROIC is at or below WACC and little to new no value will be being created. Thinking like a business owner, this makes me a tad nervous.

By no means is SYY a bad company, in fact it leads its industry. As you pointed out the dividend is great, the buybacks are nice, and so are the current returns on equity and capital. However, I think 28x free cash flow and 17x earnings may be bit rich for a company whose returns have been declining pretty consistently over the past 10 years and whose growth is less than stellar.

Again, just playing devil's advocate, there are alot of other positives I didn't include, like SYY's significant book value growth. I'm interested to see what you have to say. And also, how to you feel about UPS, a company which I believe is very similar to SYY in many ways.

Member Avatar valuemoneygreen (83.76) Submitted: 12/11/2012 11:41:27 AM
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Let me go through an important excercise with you and tell me what you think.

Lets say we each purchased UPS and SYY ten years ago at todays current prices.

You pay $74 for UPS which gives it a market cap of 70.64 billion dollars.
You get EBIT over the next ten years to current date of 42.89 billion dollars.
Today you got back roughly 60.72 % of your money.

I pay $31.88 for SYY which gives it a market cap of 18.73 billion dollars.
I get EBIT over the next ten years to current date of 16.30 billion dollars.
Today I got back roughly 87.03% of my money back.

I could argue by next year my entire investment is paid for and the year after pure profit.
You wouldn't break even for 7 more years!
Now that isn't even adding in debt obligations. In that case SYY would come out even further ahead.
I don't know that is how I look at things.
I could also add that if there was a recession SYY would do even better because more recession proof.

Member Avatar valuemoneygreen (83.76) Submitted: 12/11/2012 11:49:50 AM
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That is why is a good fit for Berkshire in my opinion. The company pays out 57% of its earnings in the way of a dividend and Berkshire could put that excess money to work for MUCH bigger returns. The only thing wrong is Berkshire would have to pay too much of a premium over the current market price to purchase it whole and it would no longer be a good deal.

Member Avatar JohnCLeven (75.47) Submitted: 12/12/2012 8:56:43 PM
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Interesting exercise.

1)Pardon my ignorance, but your example was showing what would happen if we bought UPS and SYY ten years ago at today's current prices, and i'm not sure how that makes sense. Wouldn't it make more sense to analyze future returns on todays prices? For example I took 10 yr annualized eps growth rates for both companies and checked to see how many years it would take to recoup a purchase at todays price. 12 years for SYY and 14 for UPS. So, even though I was confused about how you got there, what your saying makes sense, and SYY does have an edge over UPS.

2) In your example, SYY did get a better return than UPS, 87% in ten years. However, even 87% in ten years is only 6.46% annualized, which is ok, but not great. Perhaps there are better ideas out there? Perhaps neither company is really worth owning at this time? Perhaps I have no idea what i'm talking about?

3) What do you think is an approxamte fair value for SYY, and approxamately how much do you expect that fair value to grow over time?

4) Finally, where does SYY rank in terms of your best current ideas?

p.s. If, like an old man and the location of his lucky fishin' hole, you prefer not to answer #3 and #4, I understand.

Thanks!

Member Avatar valuemoney (99.99) Submitted: 12/13/2012 5:20:14 AM
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I will reply back more when I have a little more time. UPS isn't a bad idea. In fact is a good company. I would be a little more inclined to go with FDX at current levels. You are on the right track on your thoughts. I do read all your pitches. But the most important part in buying a share of any equity is treating it like you are buying the entire business and you plan to keep it forever. Treat earnings as if it was your income and what you could do with that income. You stated SYY had an edge when I gave my example. I would argue in terms of real earnings it was a huge edge. I use that excercise because past history is a good place to start when evalutating a business. Now what you stated is true..... SYY growth does not look that encouraging. Its current earnings yeild is only 6.52% at the price I picked it on CAPS. The earnings over the next 5 year will probably only be around 7.5 to 8% compounded. But do the math and look at earnings yield 5 to ten years out. Now look at current treasury yields. All the things I stated about the company and most important the consistancy of the earnings. If the stock price grows at 7.5% ( should grow same as earnings in theory) and you have a dividend of 3.5% that gives you a gain of 11% a year which is pretty darn hard to beat. Plus since it is a market leader and in 5 years the growth goes to 10% instead then you will have much better yields. I am not saying it will but it is hard to argue earnings will not consistants go up since it is the market leader by a long ways and the fact it has increased dividends over the last 35 year. All of those things make me pretty confortable buying SYY @ $30.33. Now take in mind the yield of the S&P when I picked this equity to outperform. I think the S&P earnings yield was around 7%. Now SYY is in the top 10 percentile in my opinion. When I factor in the 500 companies in the S&P. So if yields are roughly the same or PE if you may over time 5 plus years I have to pick SYY over the market. Is it a great idea you ask? Not really but that is not the point of my VALUEMONEYGREEN caps page. It is a good idea in which I would bet over time will beat the market. It would have to trade quite a bit lower to be a great idea worthy of my money right now. To answer your ?'s fair value for SYY is probably at current prices. Long term growth with dividends reinvested is between 10 and 11 %. May I add ten year treasury is yielding less than 2%. You do know what you are talking about. :). BAC was my best idea. Bought and sold it twice. The first time bought it for 5 and change and sold it for around 9.5. The second time 7 and change and sold for 9.74. It was a huge part of my total holdings. WFC is still cheap though I do not own it currently. My biggest holding currently is Berkshire. It makes up more than 60% of my holdings. I only own 3 equities. Berkshire. Recently bought NSC @ 57 and change and the other one I own is TSCDY. Sell points you ask? NSC I would be a seller @ $74 and TSCDY a seller @ 19 and change. Berkshire I took a huge stake in and probably will not be a seller until book value went to 1.5 times book. Unless of course a way better deal came along. I do look at charts. That is why I sold BAC when it got around 10. $10.2 was a huge resistance point. It broke out now and will eventually go to $18. The prices I mentioned on the other 2 equities are resistance points also. I buy companies and plan to hold them but I am not against selling them if there are other good deals out there. And almost always the market is mispricing something. Jeepers I wasnt going write all this cus I need to sleep but now I REALLY have to go to bed. If you want any other thoughts out of my noggin just ask. And by now means am I telling you what to do....you need take in ALL thoughts be it from me others and yourself.....combine them all and make your own decisions on what YOU think is right or wrong. If you are unsure you don't have to act. Read as much as possible and get input from all sides. If someone takes the other side of your thinking or two opinions differ try to look at stuff from both views. Things like that will help you most in investing and life in general. OK bed time.

Member Avatar JohnCLeven (75.47) Submitted: 12/13/2012 11:03:53 PM
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Thanks valuemoney, that was a very informative reply. I appreciate your continued feedback. When it comes to investing, I just try to act like a sponge, and soak it all in. I'm confident that in another 2 or 3 years, i'll have aquired enough knowledge and experience to really take this to the next level. Thanks!

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