Is Sysco Trading Below Fair Value After Announcing New Restaurant Partnerships?

• Wondering if Sysco is a bargain right now? You are not alone, as investors are keeping a close eye on whether its current share price lines up with its underlying value.
• Though the stock lost 9.5% over the past month and is down 3.3% since the start of the year, its 5-year return of 21.5% shows there is still long-term growth in the mix.
• Sysco recently generated headlines after confirming a new supply partnership with major restaurant groups. Industry news also continues to highlight ongoing shifts in consumer habits and the food distribution market. These developments are adding fresh momentum and context to its recent price swings.
• When it comes to valuation, Sysco scores 5 out of 6 on our key value checks, suggesting it may be undervalued by most traditional measures. Next, we will break down these valuation methods and introduce an approach that could provide an even clearer picture of Sysco's true worth.

Find out why Sysco's -2.4% return over the last year is lagging behind its peers.

Approach 1: Sysco Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by forecasting its future cash flows and discounting them back to their present value. This process helps investors assess whether a stock is trading below or above its true worth based on financial fundamentals, rather than market sentiment.

For Sysco, the current Free Cash Flow stands at $1.67 Billion. Analysts have projected steady cash flow growth, with Free Cash Flow expected to reach around $3.27 Billion by 2029. Beyond the first five years, Simply Wall St extrapolates further growth, with estimates surpassing $4 Billion by 2035. All amounts are reported in US dollars.

Using these projections, the DCF model calculates an intrinsic value of $145.89 per share. Compared to Sysco's current share price, this represents a significant implied discount of 49.8%, suggesting the stock is trading well below its estimated fair value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Sysco is undervalued by 49.8%. Track this in your watchlist or portfolio, or discover 843 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Sysco.

Approach 2: Sysco Price vs Earnings

For established, profitable companies like Sysco, the Price-to-Earnings (PE) ratio is a widely used tool for assessing valuation. This multiple shows how much investors are willing to pay for each dollar of the company's earnings, which is especially relevant when profits are stable and predictable.

It is important to remember that a “normal” or “fair” PE ratio for any stock depends on a mix of factors, including the company's expected earnings growth and its perceived risk. Higher growth names or lower-risk businesses typically justify a higher PE, while slower growth and greater risk demand a lower multiple.

Currently, Sysco trades at a PE ratio of 19.3x. This is roughly in line with the Consumer Retailing industry average of 19.7x, but well below the average for its peer group at 32.3x. These benchmarks give some context, but they do not account for Sysco’s unique strengths, growth outlook, and risk profile.

This is where Simply Wall St’s proprietary “Fair Ratio” comes in. Unlike a simple peer or industry comparison, the Fair Ratio calculates what multiple Sysco deserves based on an in-depth assessment of its earnings growth, margins, industry context, market capitalization, and risks. This creates a fair benchmark tailored specifically to Sysco’s circumstances.

For Sysco, the Fair Ratio is 24.2x, which is higher than its current 19.3x. This suggests that, based on the company’s fundamentals and outlook, Sysco is trading at a noticeable discount to what would be considered a fair multiple for its profile.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1406 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Sysco Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives. Rather than focusing solely on numbers, a Narrative is a dynamic story that ties together your view of a company’s future, including your estimates for revenue, profit margins, risk, and growth, with a calculation of fair value. Narratives allow investors to see at a glance how the story they believe in translates into real numbers and fair value, helping bridge the gap between what you expect to happen and what the market is pricing in.

Narratives are easy to create and update using Simply Wall St’s Community page, where millions of investors share and refine their investment perspectives. With Narratives, you get real-time updates whenever new information emerges. For example, fresh news or updated earnings will automatically adjust the story and fair value. This helps you decide when it might make sense to buy or sell, by directly comparing your Narrative’s fair value to the latest market price.

For Sysco, one investor might craft a positive Narrative with a $93 price target based on robust execution and margin improvements, while a more cautious investor might target $77, expecting prolonged macroeconomic pressures. This flexibility empowers you to shape your decisions based on the story and facts you trust most.

Do you think there's more to the story for Sysco? Head over to our Community to see what others are saying!

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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