Will Sysco Deliver Big in 2012?

The new year is here and that means that it's a perfect time to sit down with some of the stocks you own -- or, perhaps, are thinking about buying -- to figure out what 2012 may bring.

Today I'm going to take a look at Sysco (NYSE: SYY  ) , the food-services kingpin that, like the broader market, watched its stock flat-line in 2011. Could 2012 be a more profitable year for Sysco investors? Let's dig in.

The tale of the tape

Market Cap $17.2 billion
Dividend Yield 3.7%
Trailing Price-to-Earnings 15
Forward Price-to-Earnings 13.8
Expected Five-Year Growth 7.2%

Source: S&P Capital IQ.

The keys for 2012
Investors will obviously want to keep an eye on all facets of Sysco's business as it forges ahead, but I think there are three areas that deserve extra focus: the U.S. economy, food prices, and the stock's valuation.

The first of the three is really pretty simple. Sysco serves the food-service industry and as long as consumers are getting pinched, it's more likely that they'll opt to stay in and cook at home rather than eat out at establishments that are Sysco customers.

If we look back to the results from publicly traded restaurants in 2011, it was somewhat uneven across the group. Both Buffalo Wild Wings (Nasdaq: BWLD  ) and Chipotle (NYSE: CMG  ) had a fantastic year, and have grown the top and bottom line by more than 20% over the previously reported 12 months. So even if it was a tough environment, it was possible for popular, growing concepts like those to perform well. However, looking further across the industry, the numbers weren't quite as impressive. Brinker International, which owns Chili's and Maggiano's, saw its top line slip 1.5% over the same period, while P.F. Chang's (Nasdaq: PFCB  ) ended with 1.4% lower sales. Cheesecake Factory (Nasdaq: CAKE  ) grew sales, but at a sluggish 3.2% pace.

This is the kind of lackluster environment that doesn't do Sysco any favors. If we see improvement in the economy in 2012, and, in particular, improvement in the job market, that would likely provide a boost to Sysco and the restaurants above.

Even as the economy was limping along, food costs were punishing food-service companies in 2011 from the other end. For many of the restaurants above, those higher costs meant tighter profit margins. The gross margin for P.F. Chang's, for instance, fell from 18.2% in 2010 to 17.2% in the 12 months ending in October. Even hot-to-the-touch Chipotle saw its profits cool as its gross margin slipped from 37.7% to 36.9%.

Sysco, with a reporting period that ends in July, saw its gross margin compress in its fiscal 2011, declining from 19.1% in fiscal 2010 to 18.6% in this past year. Recently, food prices have been moderating, which is music to the ears of investors in these companies and diners alike. However, this will be a key issue to keep an eye on in 2012.

Finally, investors will want to keep a close watch on Sysco's stock price in the year ahead. At its current price, I believe Sysco is pretty fairly valued -- that is, not an especially attractive buy, but worth hanging onto. However, in 2011, even though the stock finished flat, it moved more than 20% between its high and low price. If the stock continues to swing like that, investors could find themselves with attractive buying -- or possibly selling -- opportunities.

The one number I love
As a Sysco shareholder, I couldn't really complain about the stock in 2011. It certainly didn't make me rich by any stretch, but it also didn't underperform the rest of the market. In short, it finished the year a high-quality company at a reasonable price. That's why I'm keeping it in my personal portfolio and leaving it as an outperform in my Motley Fool CAPS portfolio.

And while I can't say that I'm overjoyed at owning a stock that was flat for a year, the stock's nice dividend payout makes it much easier to hold on through boring patches like that. Of course Sysco isn't the only great dividend-payer you can buy. You can find a bunch of other high-quality dividends in The Motley Fool's special report: "Secure Your Future With 11 Rock-Solid Dividend Stocks."

The Motley Fool owns shares of Chipotle Mexican Grill and Buffalo Wild Wings. Motley Fool newsletter services have recommended buying shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Sysco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Sysco, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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