Sysco Corporation's (NYSE:SYY) Intrinsic Value Is Potentially 79% Above Its Share Price

In This Article:

Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, Sysco fair value estimate is US$139

  • Current share price of US$77.51 suggests Sysco is potentially 44% undervalued

  • Analyst price target for SYY is US$87.46 which is 37% below our fair value estimate

Does the April share price for Sysco Corporation (NYSE:SYY) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

Check out our latest analysis for Sysco

The Method

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Levered FCF ($, Millions)

US$1.67b

US$2.54b

US$2.63b

US$3.06b

US$3.07b

US$3.09b

US$3.13b

US$3.18b

US$3.24b

US$3.30b

Growth Rate Estimate Source

Analyst x6

Analyst x6

Analyst x4

Analyst x1

Analyst x1

Est @ 0.80%

Est @ 1.24%

Est @ 1.56%

Est @ 1.78%

Est @ 1.93%

Present Value ($, Millions) Discounted @ 6.1%

US$1.6k

US$2.3k

US$2.2k

US$2.4k

US$2.3k

US$2.2k

US$2.1k

US$2.0k

US$1.9k

US$1.8k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$21b

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.3%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.1%.