Sysco (NYSE: SYY) is under pressure after the food distribution company announced a $29 billion acquisition of Jetro, the parent company of Restaurant Depot and a leader in the “cash and carry” wholesale segment.
Investors are concerned mostly because of the massive price tag and the potential integration risks associated with such a transformative merger.
However, CEO Kevin Hourican appeared on CNBC to clear the air, explaining why this “gem of an asset” makes Sysco stock a long-term powerhouse.
Why Jetro acquisition is bullish for Sysco stock
Speaking this morning with CNBC, Hourican emphasized that the Jetro deal is “day-one accretive” – with EPS seen growing by mid-to-high single digits in the first year and low teens by year two.
By the fourth year, once full synergies are realized, the merger is projected to generate a staggering $2 billion in excess free cash flow.
For investors, this could mean a significant shift in capital allocation.
“That’s $2 billion of excess free cash flow that we can return to our investors, increase dividends, increase share buybacks, or invest in the business for growth,” Hourican noted.
In short, the Jetro acquisition is bullish for SYY shares as it will boost the firm’s operating margin to 6%, creating a more efficient engine for returning value to shareholders over the next decade.
How else does Jetro help SYY shares?
Beyond an immediate financial lift, the Jetro deal enables Sysco to dominate an “adjacent channel” where it previously had zero footprint.
Restaurant Depot operates on a “Costco for restaurants” model, where smaller owners drive to the warehouse, pick their own goods, and save 15% to 20% by eliminating delivery costs.
This segment is famously resilient; while Sysco’s core delivery business dropped 65% during the pandemic, Restaurant Depot actually increased its profit.
The growth runway here is immense. Hourican plans to leverage Sysco’s world-class supply chain to open 125 net new Restaurant Depot locations over the next twenty years.
“It’s a compounding growth business,” he explained, noting that the cash and carry format thrives during economic volatility because it is the “place you can go to save money.”
By owning both a premium delivery service and the value-based cash and carry leader, management is protecting Sysco shares from macro shifts and positioning them to benefit from the fragmented “mom and pop” restaurant scene.
How to play Sysco after the Jetro announcement?
All in all, the Jetro acquisition transforms Sysco from a traditional distributor into a $100 billion diversified food service juggernaut.
The narrative feeds right into Wall Street’s constructive view on SYY stock.
Consensus rating on the NYSE-listed firm currently sits at “moderate buy”, with the mean target of about $92 indicating potential upside of more than 12% from here.
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