Instructions:

Read the Case study below. Why you believe "Joe" has made a good investment decision or a bad investment decision?

Joe's Case Study:

Background Information

SYSCO Corporation is a multinational corporation based in Houston, Texas and specializes in the marketing and distribution of food products. SYSCO has been routinely listed as a Fortune 500 company for the past 25 years based on various criteria ("Fortune 500," 2020, para. 1). The corporation has around 67,000 employees and made sales in over 600,000 customer locations in 2018 ("Fortune 500," 2020, para. 1).

Industry Conditions

Without question, the COVID-19 epidemic has drastically impacted the restaurant and food business throughout the world. SYSCO corporation currently finds itself in a juxtaposition between the hardest hit of industries and is an essential service, whose supplies and food products are still in demand. There is no doubt that the food industry is here to stay; the question is how the current crisis will affect future earnings of the company, and how will the industry adapt to changing norms?

Financial Position

SYSCO has remained in the middle of the pack during the last quarter when compared to other prominent firms within the same industry. The stock value for a share of Aramark, another corporation involved in food business operation, is down 37.31% since the last quarter ("Market Summary," 2020). Compare that with a 31.20% decrease in stock value for SYSCO ("Market Summary," 2020). With that said, PepsiCo, another similar food corporation, has only seen an 8.11% decrease in stock value over the last quarter ("Market Summary," 2020). When compared to these same corporations, SYSCO has a less favorable P/E ratio sitting at 19.54 compared to Aramark with 55.57 and Pepsico at 26.13 ("Market Summary," 2020). A quick look at SYSCO's income statement reveals an annual net income of 1,691,790,000 ("SYY-SYSCO," 2020). Overall, this data shows that while SYSCO suffered a significant decrease in stock value over the last quarter, the corporation's stock value and financial position is strong by maintaining a middle position among its competitors.

Economic Outlook

Despite the current times proving problematic in predicting a company's economic outlook, SYSCO's year to year track record should quell the anxieties of the most cautious of investors. SYSCO's revenues have consistently climbed by millions for the last five years, with a 5.26% revenue growth rate over that time ("SYY-SYSCO," 2020). Total cash dividends paid have steadily increased over the last five years as well, with a dividends per-share value of 1.5 ("SYY-SYSCO," 2020). The corporation's cash on hand has increased by 329% in the last quarter with 2.24 Billion dollars cash on hand ("Market Summary," 2020).

Cash is known to be an extremely valuable commodity to corporations. "Cash retained and reinvested in the firm's operations is cash saved and invested on behalf of the firm's shareholders" (Brealey et al., 2020, p. 36). This amount of cash is vital in times of crisis and should be enough to ensure the company's survival through even the most tumultuous times. Research tends to reaffirm the claim that cash is essential during a crisis."The findings show that compared to "normal" times, Chinese firms tend to increase their cash holdings during the financial crisis. In general, the firms with more financial constraints, and with more investment opportunities, tend to hold more cash" (Lian et al., 2011, p. 112).Lastly,SYSCO's financials show that the company currently boasts a 5-year ROI of 10.79, which suggests that the corporation has been making solid financial and investment decisions ("SYY-SYSCO," 2020). To summarize, while SYSCO's immediate outlook is somewhat dim, the company is well-positioned to weather the storm and deliver investors results in the coming years.

Conclusion

While the current economic situation for the food industry is bleak at the moment, that shouldn't shy individuals away from investing in this Fortune 500 company. SYSCO corporation's losses are not unique during this quarter and are comparable to other corporations in the food industry. Further, upon examining the corporation's balance sheet, the income statement, cash flow, as well as other financial indicators, it appears this company would be an ok investment for the long-term. This assessment is based on SYSCO's steady performance record over the past five years and their large amount of cash on hand. The moderate rating also stems from SYSCO's current position within the industry that can be described as the middle of the pack. Potential investors shouldn't look to purchase stock in this company for short-term investment as the current stock price is significantly lower this quarter and could very well be lower in the next quarter.

References

Brealey, R. A., Myers, S. C., & Marcus, A. J. (2020).Fundamentals of Corporate Finance(10th). New York, NY: McGraw-Hill Education.

Fortune 500: SYSCO. (2020, January 31). Retrieved May 12, 2020, fromhttps://fortune.com/fortune500/2019/sysco/

Lian, Y., Sepehri, M., & Foley, M. (2011). CORPORATE CASH HOLDINGS AND FINANCIAL CRISIS: AN EMPIRICAL STUDY OF CHINESE COMPANIES[tau].Eurasian Business Review,1(2), 112-124. Retrieved fromhttp://ezproxy.liberty.edu/login?url=https://search-proquest-com.ezproxy.liberty.edu/docview/920114512?accountid=12085

Market Summary, SYSCO Corporation. (2020, May 11). Retrieved May 11, 2020, fromhttps://www.google.com/search?q=NYSE:+SYY&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNzKuyK9LSeQCFWJ83OgAAAA&tbm=fin#scso=_2E24Xuf0HcfKtQb_t7GIBg1:0&smids=/g/1ylkbbvkf&wptab=COMPANY

SYY - SYSCO Corporation Financials. (2020, May 11). Retrieved May 11, 2020, fromhttps://www.reuters.com/companies/SYY/financials/income-statement-quarterly