Sysco shares continue to trade in a bull market but the risk/reward ratio is not good for long-term investors
January 22, 2021 at 09:54 AM EST
Sysco Corporation (NYSE: SYY) shares have advanced from $50 to $79.9 in less than several months, and the current price stands around $76. Sysco Corporation is one of the largest foodservice businesses globally, but with the expected continued headwinds, this is a risky investment at the current share price.Fundamental analysis: The current price does not provide an attractive entry point for long-term investors
Sysco Corporation is an American multinational corporation that distributes food products and kitchen equipment. The company operates approximately 330 distribution facilities and supports customers in 90 different countries around the world.
The covid pandemic also impacts the company’s business, and Sysco reported that total revenue decreased by 23.0% Y/Y to $11.78B in FQ1. Total revenue has fallen above the expectations (misses by $280M), while Q1 GAAP EPS was $0.42 (beats by $0.19).
Despite this, Barclays remains bullish on this company and expects that Sysco will outperform in an economic recovery as things normalize. Argus assigned a buy rating on Sysco as the company’s long-term fundamentals remain strong.
“Although restaurant closings have led investors to focus on the liquidity of foodservice distributors, we believe that Sysco has sufficient liquidity and access to credit to survive the current downturn,” said analyst John Staszak from Argus.
Sysco Corporation has a very good position in the market, but the current share price does not provide an attractive entry point for long-term investors, in my opinion. Sysco shares are trading at pre-pandemic levels, and with the expected continued headwinds, this is a risky investment at the current price.
Sysco’s sales improvements aren’t yet returned to normal levels, and there are lots of better potential investment alternatives at this time. The company’s business will be affected by the COVID-19 pandemic certainly the next several months, and if we compare total stockholders’ equity of $1.3B and the market capitalization of $39B, we can notice that this stock is not undervalued.Technical analysis: Sysco shares are trading at pre-pandemic levels
Sysco shares are trading at pre-pandemic levels, although the company’s business will be under pressure certainly the next several months.Data source: tradingview.com
The critical support levels are $70 and $60, $80, $85, and $90 represent the resistance levels. If the price jumps above $80 resistance, it would be a signal to trade shares, and the next target could be around $85.
On the other side, if the price falls below $70, it would be a firm “sell” signal and maybe a trend reversal sign.Summary
Sysco Corporation has a very good position in the market, but with the expected continued headwinds, this is a risky investment at the current price. The company has good fundamentals and a dividend tradition, but with a $39B market capitalization, this stock is expensive, in my opinion. Sysco shares continue to trade in the bull market, but if the price falls below $70, it would be a firm “sell” signal and maybe a trend reversal sign.
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