Sysco to Acquire Coastal Companies; Shares Rise 4.3%

Foodservice distribution company Sysco Corporation (SYY) recently revealed that it has entered into an agreement to acquire a fresh produce distributor and value-added processer, The Coastal Companies, from Continental Grain Company. The financial terms of the deal have been kept under wraps.

Following the news, shares of the company gained 4.3% to close at $72.99 on Monday.

Implications of the Deal

With annual revenues of about $600 million, the acquisition will allow Sysco to gain a strong foothold in the Mid-Atlantic region. Operationally, the company is expected to benefit from The Coastal Companies’ manufacturing capabilities. The acquisition will further help diversify Sysco’s produce specialty business.

Post the buyout, The Coastal Companies will become a part of Sysco’s specialty produce business, FreshPoint. The Coastal Companies carries out its operations through three segments — Foodservice Distribution, Retail Distribution and Value-Added Manufacturing.

Management Commentary

The Executive Vice-President of U.S. foodservice at Sysco, Greg Bertrand, said, “This exciting acquisition enables FreshPoint to enhance its service to the important Mid-Atlantic region, strategically diversify its portfolio by adding retail and ready-to-eat capabilities and adds state-of-the-art facilities with capacity for growth.”

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Price Target

Recently, BMO Capital analyst Kelly Bania reiterated a Buy rating on the stock with a price target of $92, which implies upside potential of 26% from current levels.

The Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 2 Buys and 2 Holds. The average Sysco price target of $89.25 implies that the stock has upside potential of 22.3% from current levels. Shares have declined 3.8% over the past year.