Credit Suisse: Sysco Upgraded To Outperform, 'Multiple Ways To Win'

In a report published Tuesday, Credit Suisse analysts upgraded their rating on SYSCO Corporation SYY from Neutral to Outperform. The price target was raised from $38 to $43. The upgrade follows the more positive turn taken by the company's risk/reward profile. "While the company's attempted acquisition of US Foods, Inc. remains highly uncertain, we see upside in the stock at the current price with or without the deal," the analysts said. Of course, if the deal were to be completed, it would prove beneficial for the stock due to consolidation gains. The court decision regarding the merger is expected in June. Both companies have indicated that they are willing to walk away from the porposed deal if the court issues a preliminary injunction. "The market already seems to be expecting an unfavorable ruling in our view and we see a greater than 50% probability the injunction is granted," the Credit Suisse report said. SYSCO's shares have been significantly underperforming, as compared to its staples peers, for the past five years, with flat EBITDA being posted since 2010. In the absence of the US Foods deal, SYSCO would need to consider some aggressive internal restructuring to improve shareholder value, the analysts believe. The analysts see "meaningful opportunity in a restructuring at SYY given its underleveraged balance sheet and disappointing cost control over the years." The company is expected to be able to realize earnings upside of 40 percent if it takes key actions, such as a $4+ billion share buyback via debt financing, accelerating the implementation of initiatives and cutting back on problem areas to eliminate $300 million in business transformation expenses and enhanced capital efficiency, among others.