Market Overview

Morgan Stanley Downgrades Sysco To Underweight, Sees 'Better Opportunities Elsewhere'

  • SYSCO Corporation (NYSE: SYY) shares have surged 10 percent over the past five trading days.
  • Morgan Stanley’s Vincent J Sinisi downgraded the rating for the company from Equal-Weight to Underweight, while maintaining the price target at $40.
  • Shares have risen above the price target and there are no meaningful catalysts in the medium term, Sinisi stated.

SYSCO’s stock has “eclipsed” the price target, and there are no “meaningful medium term” catalysts in sight that may drive further upside, analyst Vincent Sinisi mentioned. The company announced targets of at least $400mn in EBIT improvement and $2.40-$2.50 EPS by 2018.

While SYSCO made “respectable” progress in 2Q, initiatives are still in their early stages. Moreover, comps are set to become more challenging in the back half, particularly in 4Q, during which the company recorded operating income growth of about 6 percent last year, versus an average of around 2 percent between 1Q and 3Q, Sinisi pointed out.

The analyst further commented that SYSCO has “the greatest estimated exposure to protein deflation in our coverage.” The highest impact is expected in fiscal 3Q, which means that deflation headwind could get “sequentially worse before moderating,” continuing to be a drag on sales and gross profit dollars.

The operating environment in the “large and fragmented foodservice distribution industry” lacked “foreseeable catalysts,” Sinisi added.

The Morgan Stanley report stated that consensus estimates reflected “an upward inflection in earnings,” following a multi-year period of practically no growth. Although an earnings inflection could take place, this growth is “fully credited with P/E multiples near multi-year highs.”

Latest Ratings for SYY

Jan 2020DowngradesOverweightNeutral
Dec 2019Initiates Coverage OnOverweight
Nov 2019MaintainsNeutral

View More Analyst Ratings for SYY
View the Latest Analyst Ratings

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