A Guggenheim analyst maintained a positive stance on Sysco Corporation (NYSE:SYY), reiterating a Buy rating and a price target of $85.00. The analyst's outlook followed a recent dip in Sysco's share price, which fell 4.2% after cautious remarks by management at a competitor's conference. These comments, which addressed both general economic conditions and specific company initiatives, contrasted with the broader market's slight decline of 0.3% and minor drops observed in foodservice peers.
Sysco's stock underperformance is attributed to a combination of factors, including a modest decrease in restaurant traffic and short-term disruptions caused by high turnover in the sales force due to changes in their compensation system. These challenges are expected to make the company's 2025 financial targets more dependent on stronger performance in the latter half of the period. Consequently, the analyst has slightly reduced Sysco's sales, EBITDA, and EPS estimates for the first half of 2024.
Despite the adjustments, the analyst remains optimistic about Sysco's growth potential. The ongoing effort to expand the sales team, aiming for a 7% increase, is anticipated to yield benefits in the second half of 2025. This expansion is projected to contribute to an estimated $6 in earnings per share for the calendar year 2027.
The analyst's continued endorsement of Sysco's stock is supported by its current valuation, which is trading at 10.2 times the estimated EBITDA for 2025. This valuation is below the company's historical average, suggesting a potential for an approximate 17% total shareholder return over the next year. The reaffirmed price target of $85 reflects this positive outlook, despite the near-term headwinds faced by the company.
Sysco Corporation has been making strategic moves to bolster its growth. The company recently appointed Roberto Marques to its Board of Directors, a decision that is expected to contribute positively to Sysco's "Recipe For Growth" strategy due to his extensive experience in various consumer sectors.
In terms of financial performance, Sysco reported a 3.3% increase in top-line revenue, reaching $79 billion for the fiscal year 2024. The company also exceeded its adjusted earnings per share guidance and plans to improve local case performance in the upcoming fiscal year. Notably, Sysco's international segment showed robust growth, with a 5% increase in local case growth and a 13.1% increase in profit.
Sysco anticipates net sales growth of 4-5% and adjusted EPS growth of 6-7% for fiscal year 2025. In a move to return value to its shareholders, the company expects to return almost all of its free cash flow to them.
However, Sysco has acknowledged potential disruptions due to territory realignment and a decline in U.S. gross margin influenced by customer mix and reduced shift to national brand products.
Amid these developments, Sysco plans to open a new distribution center in Allentown, Pennsylvania, aiming to enhance service levels and reduce costs. These recent developments highlight Sysco's commitment to strategic growth and shareholder value.
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