Shares of Sysco Corp., Houston, were upgraded in late December by St. Louis-based A.G. Edwards & Sons, Inc., from hold to buy, with a 12- to 18-month objective of $30. (The price on Dec. 20 was $25.76.)

A.G. Edwards analyst Andrew Smith believes that Sysco is trading below value right now, as compared with Performance Food Group (PFG), Richmond, VA. The latter is also a solid performer but not undervalued, following two years of spectacular growth, he explains.
Sysco shares deserve a premium, Smith contends, as operating margins are approximately twice those of PFG's, the only other dedicated foodservice distributor listed on major exchanges. He cites three reasons: greater buying power; higher concentration of street business; strong cash flow and economies of scale, enabling implementation of top-of-the-line technology.

Sysco's planned acquisition of the Serca Foodservice division of Sobeys should also stand the company in good stead, says this analyst. "Serca suffered a bit from the stepchild syndrome under the ownership of a retail-oriented company. Sysco has an opportunity now to bring up Serca's margins to those of its other Canadian operations."


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