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Wall Street analysts remained bullish on Sysco Corporation SYY Tuesday after the food distributor beat expectations on earnings despite lower volume growth thanks to strong cost containment.

Sysco posted fourth-quarter earnings of $1.10 per share, topping the Street’s $1.06 estimate, with the company citing low operating expense growth and a lower tax rate. The company narrowly missed Street expectations on revenue.

The Analysts

Buckingham Research analyst Bob Summers reiterated a Buy rating on Sysco with an $84 price target.

BMO Capital Markets analyst Kelly Bania kept an Outperform rating on Sysco with an $80 target price.

The Takeaways

Expectations for Sysco were marred by volume weakness. but Buckingham’s Summers said in a Tuesday note that the quarter’s results "proved better than feared."

Recent case volume growth challenges are likely transitory and "easily absorbed given the overall industry health and management's cost containment prowess," the analyst said. 

Sysco lowered its three-year outlook on adjusted operating profit growth to something closer to the Street consensus, which he Summers said: “derisks the stock” and sets management up better to meet expectations, helping the stock to continue to appreciate.

That decreased EBIT growth guidance was likely already baked into the share price, BMO’s Bania said in a Tuesday note. 

Even so, the new guidance will still require Sysco to have a strong year in 2020 to achieve its targets — but Bania said the company can do it on the basis of the restaurant industry's strength, particularly in the high-margin independent sector. 

“While near-term case growth trends appear slightly weaker, we remain bullish on the longer-term outlook for independent restaurants and SYY's potential to grow in this higher-margin segment, which we believe supports a rational competitive backdrop,” the analyst said. 

Price Action

Sysco shares were up 1.62% at $73.37 at the time of publication Tuesday.