Does Sysco’s Recent Rally Signal Further Upside After Impressive Net Income Growth?

If you have been following Sysco’s stock lately, you have probably noticed its steady climb and wondered whether it is time to jump in, hold tight, or take profits off the table. The company’s shares have advanced nearly 6.5% this year despite some bumps, and it is sitting just shy of analysts’ price targets. For those weighing their next move, it is not just about momentum; it is about whether Sysco is still a good value after the gains, especially now that consumer staples in general are regaining their shine.

Recent months have brought a renewed sense of confidence to Sysco. After a rough patch earlier this year, the stock has rebounded by over 12% in the last three months, outpacing several peers in the food distribution space. Much of this renewed interest ties back to stronger revenue growth and an eye-popping 10.2% jump in annual net income. While the past 30 days have seen a minor dip of just under 1%, long-term holders have still enjoyed a nearly 48% total return over five years. In short, the gains are real, but has the valuation run ahead of reality?

Digging into the numbers, Sysco scores a 5 out of 6 on our valuation checks, meaning the company appears undervalued on nearly every major front. In the next section, we will break down the methods behind these checks and see how the numbers stack up. I will also share what I consider the smartest perspective for assessing value at the end of the article.

Sysco delivered 6.9% returns over the last year. See how this stacks up to the rest of the Consumer Retailing industry.

Approach 1: Sysco Cash Flows

A Discounted Cash Flow (DCF) model estimates what a company is worth by projecting future free cash flows and discounting them back to today’s dollars. This approach gives investors a sense of the business’s true value based on its long-term earning power.

Sysco’s latest trailing twelve month Free Cash Flow stands at $1.64 billion. Analysts expect this figure to grow in the coming years, reaching as high as $3.27 billion annually by 2029. This represents a near doubling over a decade. These projections use a multi-stage free cash flow to equity model, which factors in both initial higher growth and a stabilizing long-term outlook.

Based on these assumptions and by discounting all future projected cash flows to present value, the intrinsic fair value for Sysco is estimated to be about $138.73 per share. When compared to the current market price, this method suggests Sysco shares are trading at a 42.1% discount. This indicates the stock is undervalued based on future cash flows.

Result: UNDERVALUED

Our DCF analysis suggests Sysco is undervalued by 42.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Sysco Price vs Earnings

The Price-to-Earnings (PE) ratio is a common and reliable way to value profitable companies like Sysco because it directly compares the market price to how much the business actually earns. When evaluating stocks with steady earnings, the PE ratio offers a quick snapshot of whether investors are paying too much, a fair amount, or getting a bargain for each dollar of profit.

It is important to remember that the "right" PE ratio depends on how much growth investors expect from the company and how risky those future profits might be. Companies with stronger growth prospects or less risk typically deserve a higher PE ratio, while slower growers or more volatile names often trade at a discount.

Sysco’s current PE ratio sits at 21x. For context, the average PE across the broader Consumer Retailing industry is just above 21.6x, while similar peer companies average a noticeably higher 33.4x. Our proprietary Fair Ratio, a forward-looking estimate built from Sysco’s growth outlook, market standing, profitability, and risk profile, comes to 27.7x for this stock. That suggests Sysco shares are trading below the level you might expect, factoring in the company’s outlook and where peers are priced.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Sysco Narrative

A Narrative is simply the story you believe about a company. It is your explanation for its fair value based on your best estimates of future revenue, earnings, and margins. By connecting the company’s journey, such as new markets or cost strategies, to a specific financial forecast, a Narrative allows you to see how your expectations translate directly into a fair value. This can make your investment decisions more transparent and actionable.

Narratives are a powerful, easy-to-use tool built into the Simply Wall St platform. They allow you to pick or create a view that best matches your perspective and to join a thriving community exploring different stories for every stock. Narratives help you decide when to buy or sell by comparing your Narrative-based Fair Value with the market Price, and they are always current since they automatically update when fresh news or earnings are released. For example, for Sysco, some investors have a Narrative with a fair value as low as $79.49, which indicates they see the stock as fully valued, while others, using higher growth and margin assumptions, estimate a fair value of $138.73. With Narratives, you can clearly see where you stand and act with confidence as the facts and your views evolve.

Do you think there's more to the story for Sysco? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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