As the world's third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.
We can't know for sure whether Buffett is about to buy Sysco
In his most recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size, proven management, and a reasonable valuation, he demands:
- Consistent earnings power
- Good returns on equity with limited or no debt
- Management in place
- 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: S&P Capital IQ.
Sysco's earnings over the past several years have held remarkably consistent despite the economic downturn, which makes sense given its status as a necessity industry.
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-to-equity ratio, because that will skew your calculations and make the company look much more efficient than it is.
Sysco generates impressive returns on equity -- 26% over the past 12 months, 31% on average over the past five years -- while employing a reasonably limited amount of debt -- 61% of equity.
CEO Bill DeLaney has been at the job since 2007. He's served in various other positions in the company since 1987.
Food distribution isn't particularly susceptible to wholesale (pardon the pun) technological disruption.
The Foolish conclusion
So is Sysco a Buffett stock? It could very well be. The company exhibits a number of characteristics of the quintessential Buffett investment: consistent earnings, high returns on equity with limited debt, tenured management, and a straightforward industry. To stay up to speed on Sysco's progress, simply add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks by clicking here.
Ilan Moscovitz doesn't own shares of any company mentioned. Motley Fool newsletter services have recommended buying shares of 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. The Motley Fool has a disclosure policy.
More from The Motley Fool
How Safe Is Sysco's Dividend?
The food services giant has done a great job with its payouts in the past, but are storm clouds looming?
3 Top Stocks With High Dividend Yields
One company offers a yield of nearly 11%.
3 High-Yield Stocks With Virtual Monopolies
These big dividends all come from businesses that enjoy highly defensible market positions.