Warren Buffett attracts a lot of attention. As the world's third-richest person and most celebrated investor, thousands try to glean what they can from his thinking processes and track his investments.

While we can't know for sure whether Buffett is about to buy SYSCO (NYSE: SYY) -- he hasn't specifically mentioned anything about it to me -- we can discover whether it's the sort of stock that might interest him. Answering that question could also inform whether it's a stock that should interest us.

In his most recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size and a reasonable valuation, he demands:

  1. Consistent earnings power.
  2. Good returns on equity with limited or no debt.
  3. Management in place.
  4. Simple, non-techno mumbo jumbo businesses.

Does SYSCO meet Buffett's standards?

1. Earnings power
Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.

Let's examine SYSCO's earnings and free cash flow history:



Source: Capital IQ, a division of Standard & Poor's. Free cash flow is adjusted based on author's calculations.

Over at least the past five years, SYSCO has earned stable profits. That's a good sign.

2. Return on equity and debt
Return on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it actually is.

Since competitive strength is a comparison between peers, and various industries have different levels of profitability and require different levels of debt, it helps to use an industry context.

SYSCO is so dominant in the food distribution business that we actually have to turn to the wider food retail industry in order to make comparisons.

Company

Debt-to-Equity Ratio

Return on Equity (LTM)

Return on Equity (5-year average)

SYSCO

65%

32%

31%

SUPERVALU (NYSE: SVU)

261%

12%

(5%)

Kroger (NYSE: KR)

147%

0.2%

20%

Costco (Nasdaq: COST)

21%

12%

13%

Food Retail Median

70%

12%

13%

Source: Capital IQ, a division of Standard & Poor's.

SYSCO exhibits a high return on equity while only employing moderate debt -- one hallmark of a strong competitive advantage.

3. Management
SYSCO CEO Bill DeLaney has been at the job since only June 2009. However, he has been with the company in other capacities since 1987. It's a similar story for the COO. SYSCO's CFO is relatively new to the job; before joining the company, he worked for other corporations in the food industry.

4. Business
The food distribution business is about as predictable an industry as it gets -- we're not dealing with arcane business models or revolutionary new products that could upend established players like SYSCO.

The Foolish conclusion
Regardless of whether Buffett ever buys SYSCO, we've learned that the company exhibits several characteristics of a quintessential Buffett investment: consistent earnings power, signs of a competitive advantage, and a simple business. It's possible he would prefer to see a longer track record for management, but their long tenure at the company is a plus.

Ilan Moscovitz doesn't own shares of any company mentioned. Costco and SYSCO are Motley Fool Inside Value recommendations. Costco is a Motley Fool Stock Advisor selection. SYSCO is a Motley Fool Income Investor recommendation. The Fool owns shares of Costco and SYSCO. The Fool has a disclosure policy.