Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Sysco Corporation (SYY): Is This Stock Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does SYSCO Corporation (NYSE:SYY) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Sysco’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at SYSCO Corporation (NYSE:SYY)’s key statistics:

Is SYSCO Corporation (SYY)'s Stock Destined for Greatness?

Source: SYY Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 21.4% Fail
Improving profit margin (32.2%) Fail
Free cash flow growth > Net income growth 2% vs. (5.2%) Pass
Improving EPS (3.9%) Fail
Stock growth (+ 15%) < EPS growth 37.6% vs. (3.9%) Fail

Source: YCharts. * Period begins at end of Q4 2009.

Is SYSCO Corporation (SYY)'s Stock Destined for Greatness?

Source: SYY Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity (30.2%) Fail
Declining debt to equity 0.5% Fail
Dividend growth > 25% 12% Fail
Free cash flow payout ratio < 50% 98.6% Fail

Source: YCharts. * Period begins at end of Q4 2009.

How we got here and where we’re going
Things do not look good for SYSCO Corporation (NYSE:SYY). The only metrics showing positive momentum are revenue and share price, but neither is good enough to earn a passing grade. Indeed, Sysco narrowly avoids a complete goose egg only because free cash flow hasn’t fallen into negative territory — but investors looking for stable dividends may be in for some frustration, as SYSCO Corporation (NYSE:SYY) is effectively paying out all of its free cash flow as dividends right now. Has this food-service leader given up on future growth, or is this just a low period before the company starts moving again in the right direction?

Last year, my fellow Fool Sean Williams pointed out that SYSCO Corporation (NYSE:SYY) should be able to outscale the problems of rising food costs that have plagued both farm providers and restaurant buyers. That hasn’t necessarily been borne out, as you can see below:

Is SYSCO Corporation (SYY)'s Stock Destined for Greatness?

Source: SYY Operating Margin TTM data by YCharts.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.