Might SYSCO Be Worth a Nibble?

I wasn't sure this day would ever come. After all, I've been consistently negative on Income Investor recommendation SYSCO (NYSE: SYY  ) since I began writing for The Motley Fool, and the stock has fallen about 20% since then. And yet I'm beginning to think that maybe, just maybe, the stock is starting to get interesting as a long-term value idea.

This fiscal third quarter wasn't a tremendously strong one, but then again, it wasn't all that terrible, either. Revenue ticked up more than 9%, though I found it interesting that food cost inflation was the highest it's been since a year ago, leading me to think there's a cyclical aspect at work here.

Margin performance was more mixed. Gross margins were all but flat with the year-ago level, and reported operating margins declined by half a percentage point. While some of that decline was certainly due to stock option expense, some of it was also due to higher fuel costs, and so even adjusted operating income was not exactly robust.

Even though SYSCO may have again lost a little share, I think this is a company with some pretty solid fundamentals behind it. While individual restaurants like Outback (NYSE: OSI  ) or Wendy's (NYSE: WEN  ) may have weak same-store sales numbers from time to time, the overall restaurant industry continues to grow. What's more, this company has driven efficiency to a point where I think new entrants will be hard-pressed to offer much in the way of better prices or service.

Today's valuation is not enough in and of itself to get me to buy the shares, but it at least has me thinking. And for the first time in over a year, I see actual value in this stock. Certainly it'll be important to monitor the progress of the company's customer sales reviews -- as well as cost trends -- but value investors should start sharpening their pencils already. You don't get too many cracks at top-notch companies, and if SYSCO gets into my buy range, I doubt it'll stay there for long.

For more Foolish food for thought:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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