2 Food Distribution Stocks with Tremendous Growth Potential

The COVID-19 pandemic severely impacted the food distribution industry because most restaurants and public venues had to be closed, and educational institutes shifted to an online operating model.

While the resurgence of COVID-19 cases doesn’t bode well for the food distribution industry, food services venues, including restaurants and cafeterias, continue to recover, with sales climbing to a $72.2 billion all-time high in July, up from a pandemic low of $29.9 billion in April 2020. Also, several schools have reopened over the past few months, implementing required safety measures. So, the demand for food distribution services should increase.

Given this backdrop, we think food distribution stocks Sysco Corporation (SYY) and US Foods Holding Corp. (USFD) could deliver solid upside in the coming months.

Sysco Corporation (SYY)

Operating through U.S. Foodservice Operations; International Foodservice Operations; SYGMA; and Other segments, SYY provides marketing and distribution of various food and related products. The Houston, Tex., company has 343 distribution facilities and distributes frozen foods, canned and dry foods, fresh meats and seafood, dairy products, and beverage products.

On July 27, SYY announced its collaboration with SAVRpak, with the goal of enriching fresh-food door-to-door delivery. Judy Sansone, SYY’s executive vice president and chief commercial officer, said, “We are very excited to offer SAVRpak to Sysco’s customers through the Cutting Edge Solutions platform.”

SYY’s sales came in at $16.10 billion for its  fiscal fourth quarter ended July 3, 2021, up 82% year-over-year. The company’s non-GAAP operating income was $605.18 million compared to a $33.88 million loss in the prior year’s quarter. In comparison, its non-GAAP net earnings was  $366.31 million, versus a $147.83 million loss in the year-ago period. Also, its non-GAAP EPS came in at $0.71 compared to a $0.29 loss in the prior-year period. The company's total assets have increased at a 5.8% CAGR over the past three years.

For its fiscal year 2022, analysts expect SYY’s EPS and revenue to increase 165.2% and 24.1%, respectively, year-over-year to $3.50 and $63.65 billion. Also, the stock’s EPS is expected to grow at a 53.8% rate per annum over the next five years. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has soared 28.3% in price over the past year to close yesterday’s trading session at $77.14.

SYY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

SYY has a B grade for Value, Growth, Sentiment, and Quality. Within the Food Makers industry, it is ranked #2 of 82 stocks. Click here to see the additional POWR Ratings for Momentum and Stability for SYY.

US Foods Holding Corp. (USFD)

Foodservice distributor USFD functions through 70 distribution facilities and 78 cash-and-carry locations, offering fresh, frozen, and dry food and non-food products. The company's customers include independently owned single- and multi-unit restaurants, regional concepts, national restaurant chains, and retail locations. USFD is headquartered in Rosemont, Ill.

On June 14, 2021, USFD unveiled its  Summer Scoop program, which is themed “Dining Out Is In Again,” and aims to bring back efficient restaurant businesses fast. Stacey Kinkaid, vice president of product development and innovation for USFD, said, “Operators need products that are easy to prep back-of-house, require fewer culinary skills, and deliver on taste, quality and profitability. With Summer Scoop, we’ve designed a product lineup to help restaurant operators meet these challenges head-on.”

USFD’s net sales increased 68% year-over-year to $7.66 billion for the second quarter, ended July 3, 2021. The company’s adjusted EBITDA came in at $332 million, up 277.3% year-over-year. Its non-GAAP net income was  $146 million, compared to a $49 million loss in the prior-year period. Also, its non-GAAP EPS was  $0.58 compared to a $0.22 loss per share in the year-ago period. Furthermore,  the company's revenue and total assets have increased at CAGRs of 2.4% and 12.7%, respectively, over the past three years.

Analysts expect USFD’s EPS to come in at $1.65 in the current year, representing a 1,733.3% year-over-year increase. In addition, its EPS is expected to grow at a 220.8% rate per annum over the next five years. The company’s revenue is expected to rise 30.2% year-over-year to $7.61 billion for the quarter ending September 30, 2021. Over the past year, the stock has gained 35.3% in price to close yesterday’s trading session at $32.89.

USFD’s POWR Ratings reflect solid prospects. The company has an overall B rating, which equates to a Buy in our proprietary rating system.

In addition, it has an A grade for Growth, and a B grade for Value. USFD is ranked #20 in the Food Makers  industry. Click here to see the additional POWR Ratings for USFD (Stability, Quality, Sentiment, and Momentum).

SYY shares were unchanged in premarket trading Wednesday. Year-to-date, SYY has gained 5.73%, versus a 21.48% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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