Sysco vs. US Foods: Which Food Distribution Stock is a Better Choice?

Sysco Corporation (SYY) in Houston, Tex., markets and distributes various food and related products primarily to the foodservice or food-away-from-home industry internationally. It operates through U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other segments. In comparison, US Foods Holding Corp. (USFD) in Rosemont, Ill., through its subsidiary, US Foods, Inc., markets and distributes fresh, frozen, and dry food and non-food products to foodservice customers in the United States. It operates 70 distribution facilities and 78 cash-and-carry locations.

The cost of food in the United States increased 4.6% in September, according to the U.S. Bureau of Labor Statistics. The key reasons for rising food prices are overall supply chain disruptions, heavy demand for food commodities, and a slowdown in shipping. Federal Reserve chair Jerome Powell said that global supply chain issues could remain through 2022. Because these factors are expected to keep driving food prices higher, the food distribution industry should thrive. Therefore, we think both SYY and USFD should benefit.

SYY’s shares have gained 6.9% in price over the past nine months, while USFD has returned 4.5%. However, USFD’s 8.1% gains year-to-date are higher than SYY’s 5.1% returns. Furthermore, USFD is the clear winner with 42.3% gains versus SYY’s 20.4% in terms of their past year's performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On September 23, 2021, SYY launched eight innovative concepts nationwide through the company’s Cutting Edge Solutions platform. Judy Sansone, SYY’s executive vice president and chief commercial officer, said, “Our Cutting Edge Solutions platform helps our customers stay on-trend and ahead of the competition with new and innovative offerings for dine-in, takeout or delivery, while also providing labor saving solutions to support their success in today’s environment.”

On October 19, 2021, Bronstein, Gewirtz & Grossman, LLC announced that it had launched  an investigation into  USFD and certain of its officers and/or directors on concerns over corporate wrongdoing.

Recent Financial Results

SYY’s sales increased 82% year-over-year to $16.10 billion for its fiscal fourth quarter ended July 3, 2021. The company’s adjusted EBITDA grew 447.1% year-over-year to $ $781.1 million, while its non-GAAP net earnings came in at $366.31 million, versus a $147.83 million in the prior-year quarter. Also, its non-GAAP EPS was $0.71 compared to a $0.29 loss in the year-ago period.

USFD’s net sales increased 68% year-over-year to $7.70 billion for its fiscal second quarter, ended June 30, 2021. The company’s adjusted EBITDA grew 277.3% year-over-year to $332 million, while its adjusted net income came in at $146 million, versus a $49 million loss in the prior-year quarter. Also, its adjusted EPS came in at $0.58 compared to a $0.22 loss per share in the year-ago period.

Past and Expected Financial Performance

SYY’s total assets have grown at a 5.8% CAGR over the past three years. Analysts expect SYY’s revenue to increase 24.1% in the current year and 6.2% next year. The company’s EPS is expected to grow 143.8% in the current year and 20.2% next year. Furthermore, its EPS is expected to grow at a 52.9% rate 52.9% per annum over the next five years.

In comparison, USFD’s total assets grew at a 12.7% CAGR over the past three years. The company’s revenue is expected to increase 26.9% in the current year and 7.3% next year. Its EPS is expected to grow 1,744.4% in the current year and 53% next year. Also, USFD’s EPS is expected to grow at a 219.9% rate per annum over the next five years.

Profitability

SYY’s trailing-12-month revenue is 1.98 times what USFD generates. Moreover, SYY is more profitable, with 18.24% and 4.54% respective gross profit and EBITDA margins, compared to USFD’s 16.20% and 2.81%.

Furthermore, SYY’s 37.71%, 4.52%, and 6.70% respective ROE, ROA, and ROTC are higher than USFD’s 0.72%, 1.50%, and 1.95%.

Valuation

In terms of forward non-GAAP P/E, SYY is currently trading at 22.26x, which is 3.5% higher than USFD’s 21.50x. And SYY's13.44x forward EV/EBITDA ratio is 9.2% higher than USFD’s 12.31x.

So, USFD is relatively affordable here.

POWR Ratings

SYY has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. In contrast, USFD has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Both SYY and USFD have a grade of B for Momentum and Value. In addition, SYY has a B grade for Quality. This is justified given SYY's 38.67% trailing-12-month ROCE, which is 239.8% higher than the 11.38% industry average. On the other hand, USFD has a C Quality grade, which is in sync with its negative trailing-12-month ROCE, compared to the 11.38% industry average. Of the 83 stocks in the Food Makers industry, SYY is ranked #3, while USFD is ranked #29.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Stability, and Sentiment. Click here to view all the SYY ratings. Also, get all the USFD ratings here.

The Winner

The food distribution industry is expected to benefit significantly from rising food prices. And while both SYY and USFD are expected to gain, we think it is better to bet on SYY now because of its higher profitability and better financials.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Food Makers industry here.

SYY shares were trading at $78.03 per share on Tuesday morning, down $0.02 (-0.03%). Year-to-date, SYY has gained 7.57%, versus a 23.59% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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