ModernGraham Valuation Of SYSCO Corporation

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Solved ModernGraham Valuation Of SYSCO Corporation

Post by elfsiias on January 6th 2014, 6:00 am

  Here is a look at how SYSCO Corporation (SYY) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7Adequate Size of Enterprise - market capitalization of at least $2 billion - PASSSufficiently Strong Financial Condition - current ratio greater than 2 - FAILEarnings Stability - positive earnings per share for at least 10 straight years - PASSDividend Record - has paid a dividend for at least 10 straight years - PASSEarnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAILModerate PEmg ratio - PEmg is less than 20 - FAILModerate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAILEnterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASSSufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASSEarnings Stability - positive earnings per share for at least 5 years - PASSDividend Record - currently pays a dividend - PASSEarnings growth - EPSmg greater than 5 years ago - PASSValuation Summary (Explanation of the ModernGraham Valuation Model)Key Data: MG Value$15.38 MG OpinionOvervalued Value Based on 3% Growth$26.14 Value Based on 0% Growth$15.32 Market Implied Growth Rate5.83% Net Current Asset Value (NCAV)-$2.22 PEmg20.16 Current Ratio1.68 PB jordan06Balance Sheet - 9/30/2013 Current Assets$6,534,300,000 Current Liabilities$3,883,700,000 Total Debt$2,878,400,000 Total Assets$13,025,400,000 Intangible Assets$2,108,600,000 Total Liabilities$7,826,300,000 Outstanding Shares581,210,000Earnings Per Share 2014 (estimate)$1.75 2013$ jordans67 2012$1.90 2011$1.96 2010$1.99 2009$1.77 2008$1.81 2007$1.60 2006$1.35 2005$1.47 2004$1.37 2003$1.18Earnings Per Share - ModernGraham 2014 (estimate)$1.80 2013$1.84 2012$1.91 2011$1.89 2010$1.80 2009$1.67Conclusion:Sysco Corp. is a very intriguing company to the Enterprising Investor, but not the Defensive Investor. The company's lack of earnings growth over the ten-year period, along with its high PEmg and PB ratios and its low current ratio, disqualify it from suitability for the Defensive Investor. The Enterprising Investor's requirements are all satisfied, however, so that investor type should feel comfortable proceeding with further research, beginning with a comparison to some other Enterprising Investor companies.From a valuation standpoint, the company has not had sufficient growth in its earnings, with EPSmg (normalized earnings) only growing from $1.67 in 2009 to an estimated $1.80 for 2014. The market is currently implying a growth rate of 5.83%, which is higher than the historical performance supports. As a result, the company appears to be overvalued.What do you think? Do you agree that Sysco Corp. is overvalued? What would be your assessment? Is the company suitable for Defensive Investors or Enterprising Investors?Disclosure: The author did not hold a position in Sysco Corp. (SYY) at the time of publication and had no intention of changing that position within the next 72 hours.<br> <br>

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