Houston, Tex.-based Sysco Corporation (SYY) and US Foods Holding Corp. (USFD) in Rosemont, Ill., are two prominent players in the food industry. SYY markets and distributes a range of food and related products primarily to restaurants, healthcare, and educational facilities. The company also distributes personal care guest amenities, housekeeping supplies, room accessories, and textiles to the lodging industry. In comparison, USFD markets and distributes fresh, frozen, and dry food and non-food products to independently owned single- and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations.

Deepening of supply chain disruptions, rising oil and commodity prices, and labor shortages have led to a significant increase in food prices lately. However, a steady demand for fresh and packaged food products should allow food distribution companies to benefit by passing on their increased input costs to their customers. Also, the adoption of software and the latest technologies in warehousing and distribution should drive the industry’s growth. So, both USFD and SYY should benefit.

But while USFD stock has gained 3.7% in price over the past year, SYY has surged 5.2%. Also, SYY is a clear winner with 9.8% gains over the past nine months versus USFD’s 4.3% returns. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On Feb. 14, 2022, SYY completed the acquisition of The Coastal Companies, a leading fresh produce distributor and value-added processor that will operate as part of SYY’s FreshPoint specialty produce business. The acquisition should help FreshPoint enhance its service to the important Mid-Atlantic region, strategically diversify its portfolio by adding retail and ready-to-eat capabilities and state-of-the-art facilities with growth capacity.

On Feb.2, 2022, USFD announced plans to open two new US Foods CHEF’STORE, its chain of American warehouse grocery stores in Visalia, California, and Lynchburg, Virginia. The new stores will feature a wide selection of restaurant-quality products at wholesale prices, including fresh meat, produce, dairy and deli items, baking ingredients, beverages, catering essentials, janitorial supplies, and other restaurant essentials. CHEF’STORE should witness high demand in the coming months.

Recent Financial Results

SYY’s sales for its fiscal year 2022 second quarter, ended Jan. 1, 2022, increased 41.2% year-over-year to $16.32 billion. The company’s gross profit came in at $2.89 billion, representing a 37.8% year-over-year improvement. Its non-GAAP operating income was $495.67 million for the quarter, indicating a 111.8% rise from the prior-year period. SYY’s non-GAAP net income came in at $291.94 million, up 240% from the year-ago period. Its non-GAAP EPS increased 235.3% year-over-year to $0.57. The company had $1.37 billion in cash and cash equivalents as of Jan. 1, 2022.

For its fiscal 2021 fourth quarter, ended Jan. 1, 2022, USFD’s net sales increased 24.5% year-over-year to $7.64 billion. The company’s non-GAAP gross profit came in at $1.26 billion, indicating a 21.6% year-over-year improvement. Its adjusted EBITDA was $262 million, up 50.6% from the prior-year period. While its non-GAAP net income increased 317.4% year-over-year to $96 million, its non-GAAP EPS grew 280% to $0.38. The company had $638 million in cash and cash equivalents as of Dec. 31, 2021.

Past and Expected Financial Performance

SYY’s revenue and total assets have increased at CAGRs of 0.6% and 5.6%, respectively, over the past three years.

SYY’s EPS is expected to grow 114.6% year-over-year in its fiscal year 2022, ending June 30, 2022, and 34.3% in its fiscal 2023. Its revenue is expected to grow 28.4% year-over-year in fiscal 2022 and 7.2% in fiscal 2023. Analysts expect the company’s EPS to grow at a 51.2% rate per annum over the next five years.

USFD’s revenue and total assets have increased at CAGRs of 6.9% and 10.9%, respectively, over the past three years.

Analysts expect USFD’s EPS to improve 39.4% year-over-year in its fiscal year 2022, ending Jan. 1, 2023, and 31% in its fiscal year 2023. Its revenue is expected to grow 11% year-over-year in its fiscal 2022 and 5% in fiscal 2023. Analysts expect the company’s EPS to grow at a 28.9% rate per annum over the next five years.

Valuation

In terms of forward EV/Sales, SYY is currently trading at 0.78x, which is 81.4% higher than USFD’s 0.43x. And in terms of forward EV/EBITDA, USFD’s 10.95x compares with SYY’s 15.70x.

Profitability

SYY’s trailing-12-month revenue is almost 2.1 times USFD’s. SYY is also more profitable, with a 4.6% EBITDA margin versus USFD’s 2.9%.

Furthermore, SYY’s ROE, ROA, and ROTC of 57.8%, 5.8%, and 8.8%, respectively, compare with USFD’s 3.9%, 2.4% and 2.9%.

POWR Ratings

While SYY has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, USFD has an overall C grade, which equates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both SYY and USFD have B grades for Value, which is consistent with their lower valuation ratios compared to their peers. SYY has a 0.78x forward EV/Sales, which is 57.3% lower than the 1.83x industry average. USFD’s 0.43x forward EV/Sales is 76.4% lower than the 1.83x industry average.

SYY has an A grade for Growth, in sync with its higher growth rates over the past year. SYY’s revenue has grown 32.3% over the past year. USFD’s B grade for Growth reflects its relatively lower growth. USFD’s revenue increased 28.9% over the past year.

Among the 85 stocks in the B-rated Food Makers industry, SYY is ranked #13, USFD is ranked #29.

Beyond what we have stated above, our POWR Ratings system has also rated SYY and USFD for Stability, Quality, Sentiment, and Momentum. Get all SYY ratings here. Also, click here to see the additional POWR Ratings for USFD.

The Winner

The growing demand for warehousing amid rising supply chain constraints and steady demand for fresh and packaged food products should drive the performance of USFD and SYY in the near term. However, higher profitability makes SYY a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Food Makers industry.

SYY shares were trading at $83.01 per share on Wednesday afternoon, down $0.09 (-0.11%). Year-to-date, SYY has gained 6.30%, versus a -3.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

More Resources for the Stocks in this Article