The cost of food in the United States increased by 10.1% in May 2022, according to the U.S. Bureau of Labor Statistics. It is the first increase of 10% or more since March 1981. The key reasons for rising food prices are overall supply chain disruptions and high energy prices exacerbated by the ongoing Russia-Ukraine war.
As the shortage of food commodities is expected to persist, and demand continues to rise, the food distribution industry should keep growing. Moreover, technological advancements in food distribution should drive the industry’s long-term growth.
Given this backdrop, it could be wise to invest in Sysco Corporation (SYY) and US Foods Holding Corp. (USFD), which are well-positioned to capitalize on the industry’s growth. These stocks are rated Strong Buy or Buy in our proprietary POWR Ratings system.
Sysco Corporation (SYY)
SYY engages in the marketing and distribution of various food and related products primarily to the food service or food-away-from-home industry internationally. It operates through U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other segments.
On April 28, 2022, SYY announced that the Board of Directors had approved a 2-cent increase in the quarterly cash dividend to $0.49 per share from the current $0.47 per share. The new dividend is payable for the first time on July 22, 2022, to common stockholders of record at the close of business on July 1, 2022.
SYY’s sales increased 42.9% year-over-year to $16.90 billion for the fiscal third quarter ended April 2, 2022. The company’s adjusted EBITDA grew 72.8% year-over-year to $755.80 million, while its non-GAAP net earnings came in at $362.90 million, representing a 216.1% year-over-year increase. Also, its non-GAAP EPS came in at $0.71, up 222.7% year-over-year.
For fiscal 2022, analysts expect SYY’s EPS and revenue to increase 123.6% and 32.7% year-over-year to $3.22 and $68.08 billion, respectively. The stock has gained 8.3% over the past six months to close yesterday’s trading session at $78.75.
SYY’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth and a B grade for Sentiment and Value. Within the B-rated Food Makers industry, SYY is ranked #7 out of 87 stocks. Click here to see the additional POWR Ratings for SYY (Stability, Momentum, and Quality).
US Foods Holding Corp. (USFD)
USFD, through its subsidiary, US Foods, Inc., markets and distributes fresh, frozen, and dry food and non-food products to food service customers in the United States. It operates 70 distribution facilities and 78 cash-and-carry locations.
On May 18, 2022, USFD announced a strategic agreement with Kalera, one of the world’s leading hydroponic indoor vertical farming companies. Josh Waters, senior vice president of produce category management for USFD, said, "Our agreement with Kalera will fundamentally change the manner in which vertical farmed products are made available to restaurants and other foodservice operators across our footprint."
USFD’s net sales increased 23.9% year-over-year to $7.80 billion for the fiscal first quarter ended April 2, 2022. The company’s adjusted EBITDA grew 40.1% year-over-year to $241 million, while its adjusted net income came in at $80 million, representing a 196.3% year-over-year increase. Also, its adjusted EPS came in at $0.36, up 200% year-over-year.
For fiscal 2022, analysts expect USFD’s EPS and revenue to increase 45.8% and 14.1% year-over-year to $2.26 and $33.63 billion, respectively.
USFD’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Growth and a B grade for Value and Sentiment.
Click here to see the additional POWR Ratings for USFD (Stability, Momentum, and Quality). USFD is ranked #14 in the same industry.
SYY shares were trading at $78.32 per share on Thursday afternoon, down $2.46 (-3.05%). Year-to-date, SYY has gained 0.87%, versus a -22.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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