Citi Lowers Sysco (SYY) Target Despite “Accretive” Deal Outlook

Sysco Corporation (NYSE:SYY) is included among the 14 Cheap DRIP Stocks to Buy Now.

On March 31, Citi lowered its price recommendation on Sysco Corporation (NYSE:SYY) to $72 from $88. It reiterated a Neutral rating on the shares. The firm said the stock declined after news of Sysco’s planned acquisition of Jetro Restaurant Depot. The analyst said that while the deal is expected to be accretive, concerns around due diligence and execution risk are valid. Citi also noted that it could take years to disprove the bear case, which may leave an overhang on the stock for some time.

On March 30, Reuters reported that Sysco had agreed to acquire catering supplier Jetro Restaurant Depot in a $29 billion deal. The move is aimed at expanding its reach among price-conscious independent restaurants. The company said it plans to fund the deal with $21 billion in new and hybrid debt, along with $1 billion in cash and equity. Jetro Restaurant Depot operates a wholesale cash-and-carry model, where customers pay upfront for goods such as food, beverages, and takeaway containers. This model complements Sysco’s existing delivery network that serves restaurants, hospitals, and hotels.

The deal would also allow Sysco to enter a higher-margin segment of the market. Restaurant Depot has about 166 warehouse locations across 35 U.S. states. The companies said Restaurant Depot shareholders will receive $21.6 billion in cash and 91.5 million Sysco shares, valued at about $7.5 billion based on Friday’s close. That would give them roughly a 16% stake in the combined company.

Sysco Corporation (NYSE:SYY) sells, markets, and distributes food products to restaurants, healthcare and educational facilities, lodging establishments, and other customers that prepare meals away from home. It also provides a range of non-food items. The company operates through U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other segments.

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