JPMorgan Says Accumulate Sysco Shares In The Low $50s

JPMorgan’s John Ivankoe believes the current valuation of SYSCO Corporation (NYSE: SYY) in the low $50s offers an attractive entry point.

The analyst upgraded the rating on the company from Neutral to Overweight, while raising the price target from $55 to $57.

Q2 Miss

Sysco reported its adjusted EPS for second-quarter fiscal year 2017 at $0.58, ahead of the estimate, while core operating income was slightly ahead of expectations, driven by the Brakes Group acquisition, which closed on July 5, 2016.

U.S. broadline case volumes were roughly flat, missing the estimate, offset by improved cost management and core operating income margin marginally ahead of the estimate at 4.1 percent.

“Of most importance was the company raising its 3-year (F15–F18) adjusted operating income growth target from $500+ million to $600 million–$650 million,” Ivankoe mentioned.

Pullback

The analyst believes that the softer U.S. broadline case volumes, along with local case volumes of 1.6 percent, led to the 3 percent pullback in the stock on market open and another decline of about 1–2 percent to 4–5 percent in mid-day trading, “as investor confusion abounded whether the op. income increase guide excluded or included Brakes Group, and therefore whether it was an effective guide up or guide down.”

Sysco clarified during its earnings call that the operating income increase was ex-Brakes Group and therefore a raise to the previous guidance.

“Ultimately, the stock closed down ~3 percent on what we view as positively incremental news regarding the company’s longer-term outlook,” Ivankoe pointed out.

At last check, shares of Sysco were up 2.19 percent at $52.33.

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