Is June a good month for buying Sysco Corporation shares?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on May 22, 2021
  • Sysco reported softer than expected third-quarter results
  • Wells Fargo remains bullish on Sysco
  • The management of the company announced last week a new $5 billion share repurchase plan

Sysco Corporation (NYSE: SYY) shares have advanced from $74.14 above $86 since the beginning of January 2021, and the current price stands around $80.51. Sysco reported softer than expected third-quarter results this month; still, the company’s management expects to see improving demand trends as restrictions ease in the areas in which Sysco operates.

Fundamental analysis: The company’s business remains under pressure

Sysco Corporation is an American multinational corporation that distributes food products and kitchen equipment in more than 90 different countries worldwide. The Covid-19 pandemic continues to impacts the company’s business, and Sysco reported softer than expected third-quarter results this month.

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Total revenue has decreased by -13.9% Y/Y to $11.8 billion, while GAAP EPS in the third quarter was $0.17 (missed by $0.01). Total revenue has decreased above expectations (-$170 million), but the company expects to see improving demand trends as restrictions ease in the areas in which Sysco operates.

“We see consistently improving demand trends from our customers in the United States, and we are ready to execute in International as markets reopen. Sysco has made substantial progress against our transformation agenda, as we simultaneously invest in growth and transform our company to serve our customers better,” said Kevin Hourican, Sysco’s president and chief executive officer.

The revenues of the International Foodservice Operations segment have decreased by -31.3% compared to the same period last year and delivered an operating loss of $121.5 million. Sysco is a risky investment at the current share price with the expected continued headwinds and potential duration or other implications of the coronavirus (“COVID-19”) pandemic.

Sysco Corporation trades at more than seventeen times 2020 EBITDA, the book value per share is less than $3, and the current dividend yield is around 2.3%. The current risk/reward ratio is not good enough for “value” investors, the company’s business remains under pressure, and probably it is not the right moment for buying Sysco Corporation shares.

Despite this, Wells Fargo remains bullish on this company and expects that Sysco will outperform in an economic recovery as things normalize. The positive news is that the company’s management announced last week a new $5 billion share repurchase plan and a deal to acquire Greco and Sons for an undisclosed amount.

Technical analysis: Sysco shares are trading at pre-pandemic levels

Sysco shares are trading at pre-pandemic levels even though the company’s business remains under pressure. This stock is not undervalued, and if the U.S. stock market enters a more significant correction phase, the share price could be at much lower levels.

Data source: tradingview.com

If the price falls below $75 support, it would be a firm “sell” signal, and the next target could be around $70. On the other side, if the price jumps above $90 resistance, it would be a signal to trade Sysco shares, and the next target could be around $95 or even $100.

Summary

Sysco reported softer than expected third-quarter results this month, and probably it is not the right moment for buying Sysco Corporation shares. Sysco shares are trading at pre-pandemic levels, the company’s business remains under pressure, and this stock is not undervalued.

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