While Shares Sliding on Concerns Surrounding Cost Pressures, Sysco's Valuation Still Lofty
Despite the high-single-digit downdraft in shares following first-quarter results (3.9% reported sales growth, 1-basis-point bump to gross margin to 19.08%, and 6 basis points of adjusted operating margin expansion to 4.55%), we continue to view Sysco’s shares as a touch inflated relative to our $57 fair value estimate (which we expect to tick up by about $1 per share to reflect additional cash generated since our last update). While we haven’t wavered on our thinking that Sysco benefits from it...Sysco, acting through its subsidiaries and divisions, is a distributor of food and related products primarily to the foodservice or food-away-from-home industry. The company has three reportable segments: United States Foodservice Operations, which primarily include United States Broadline operations, which distribute a line of food products, including custom-cut meat, seafood, specialty produce, specialty imports and a variety of non-food products; International Foodservice Operations, which include operations in the Americas and Europe, which distribute a line of food products and a variety of non-food products; and SYGMA, which consists of its United States customized distribution subsidiary.
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