SYSCO Stock Analysis: Is this Food Service Giant a Buy?

PUBLISHED May 30, 2025, 7:06:05 PM        SHARE

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Over the past year, Sysco has dropped 11%, bringing its current trading price close to its 52-week low. Now, let's jump straight to my stock valuation spreadsheets. As always, I plug in Sysco's ticker, and all the key metrics populate automatically. If you want to download these spreadsheets, you can do so using the link in the description. https://youtu.be/F4GW43kKMJs?si=AplAS40wsQpQTtVx

Dividend Yield & Payout Ratio: Mixed Signals?

Sysco boasts a starting dividend yield of 2.86%, which is relatively high. However, one red flag is its trailing free cash flow payout ratio, currently sitting at 56.57%. While high payout ratios can be concerning, Sysco operates in a less innovative sector, making this level of payout somewhat acceptable.

The Nine-Pillar Analysis: Sysco Scores 5/9

Moving straight to my nine-pillar analysis, Sysco gets a rating of five out of nine, with four pillars in the red. As I always say, the most important factor for long-term value investors is financial growth. Looking at Sysco’s five-year growth rates:

  • Revenue CAGR: 10.10%
  • Free cash flow growth: 12%
  • Net income growth: 40%

The numbers tell a story of consistent financial expansion. Revenue jumped from $51 billion in 2020 to $80 billion in 2024, while net income grew from $524 million to $1.9 billion. Free cash flow increased as well, indicating strong operational efficiency.

However, despite this growth, the stock has fallen 6.51% over the past five years. This disconnect suggests the market may be irrational in valuing Sysco.

Profit Margins & Capital Efficiency: A Hidden Strength?

Sysco’s five-year profit margin sits at just 2%, below the preferred 10% threshold. However, it’s normal for companies in Sysco’s industry to operate with low margins. Encouragingly, Sysco’s profit margin has improved from 1% in 2020 to 2.40% in 2024—a 100% increase.

Additionally, Sysco's return on invested capital (ROIC) has jumped from 6.18% to 14.24%, indicating greater efficiency in generating returns. The company is spending less to make more, which is a great sign.

Sysco’s Valuation: Discounted Compared to History

Now, let’s examine price-to-earnings (P/E) ratio and price-to-free cash flow:

  • Five-year P/E ratio: 42.65, meaning investors paid $42 for every $1 of Sysco’s net income
  • Current P/E ratio: 18.42, which is more than 50% lower than the five-year average

This significant drop suggests that Sysco is trading at a huge discount compared to historical values.

Similarly, Sysco’s price-to-free cash flow ratio is now 16.7, well within the range of fair valuation. Based on these metrics, Sysco appears undervalued.

Debt Levels: A Cause for Concern?

One area to watch is long-term liabilities. Sysco’s five-year free cash flow minus dividends gives it a debt coverage ratio of 4.60, meaning it would take over 20 years to pay off its long-term debt. While this isn’t ideal, Sysco’s consistent financial growth helps mitigate the risk.

Dividend Growth: Slow but Promising

Sysco’s five-year dividend CAGR sits at a low 2.22%, trailing many competitors. However, its dividend yield of 2.86% compensates for this slow growth. More importantly, its free cash flow payout ratio has been declining, signaling future dividend increases could be possible.

Intrinsic Valuation Models: Is Sysco a Buy?

Now, let’s run Sysco through four valuation models to determine its intrinsic value.

  1. GRS Formula Revised
    Using earnings growth estimates, we get an intrinsic value of $54.50, 24% lower than the current trading price.

  2. Discounted Cash Flow Model
    Based on 8.3% projected free cash flow growth and a 7.32% discount rate, Sysco’s intrinsic value comes out at $88.60, above the current price.

  3. Multiples Valuation
    Comparing Sysco to competitors, we derive an intrinsic value of $129.10, showing significant undervaluation.

  4. Dividend Discount Model
    Projecting dividend growth at 3.67%, we estimate an intrinsic value of $57.95.

Final Verdict: Sysco’s Stock Looks Undervalued

Averaging out all four valuation models, Sysco’s intrinsic value is estimated at $82.50, which is 15% above the current price. Applying a 10% margin of safety, an acceptable buy price would be around $74.20.

More Stocks Like Sysco

Company Name Symbol Why It's Better Than SYY
US Foods Holding Corp. USFD US Foods has a more aggressive growth strategy and a stronger presence in the independent restaurant sector.
Performance Food Group PFGC PFGC has demonstrated higher revenue growth and better operational efficiency compared to Sysco.
Chefs' Warehouse CHEF Specializing in high-end food distribution, Chefs' Warehouse benefits from premium pricing and niche market dominance.
United Natural Foods UNFI UNFI has a strong focus on organic and natural foods, aligning with growing consumer trends toward healthier eating.
The Andersons ANDE Diversified across agriculture and food distribution, Andersons offers stability and exposure to multiple revenue streams.

SYY, Buy

Sysco Corporation
Return: 0.86%

SYY, Buy

Return: 0.86%


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