An Evaluation of A Common Stock

Common stock valuation and analysis are not exact science. Mathematical and statistical analyses can only carry this process to a certain extend. Stock brokers usually would show the clients the past performance of a stock. These past performance may include 1-year and 5-year stock returns, the dividend, the P/E and P/S ratios, the beta of the stock, and some technical charts, etc. This collection of information may or may not be sufficient to make a good judge or prediction of the future performance of a stock. However, at the least, this can serve as the very beginning of the evaluation process. In the following, I use a certain set of evaluation tools, mathematical and statistical, to make an objective evaluation of the stocks. Of course, no one can have a crystal ball. But, I have certain degree of satisfaction myself following my own research. After all, just as Mr. Frank Sinatra once said, I do it my way. The steps of my research are presented in the following pages. They can only serve as reference. You are ultimately responsible to your own actions.

The SYSCO Company

1. Company Profile: SYSCO Corporation is an American distributor of food and related products primarily to the foodservice or food-prepared-away-from-home industry. SYSCO provides its products and services to approximately 400,000 customers, including restaurants, healthcare and educationnal facilities, lodging establishments and other foodservice customers.

2. The and , the up market , and the down market : Beta can be estimated by regressing the excess return from the riskless holdings (generally the return of 3-month CD is used for this purpose) of the security on the excess return of the market by the following relationship: Excess Return of Stock = + Excess Return of Market. When a stock with more up-side than downside potential or vice versa, the usual estimate of would become misleading. Therefore, it is sometimes important to distinguish the Up-Market-Risk and the DownMarket-Risk of a security. This can be accomplished by the following estimation: Excess Return of Stock = + u Excess Return of Up-Market + d Excess Return of Down-Market. This companys alpha, overall beta, the up-market beta, and the downmarkets beta are shown in the following table. The estimates were based on the data of the past 10-years. In addition, using different statistical method may derive to a somewhat different results. Parameter Estimated Values Alpha 0.0008 Overall Beta 0.999 Up-Market Beta 0.528 Down-Market Beta 0.471

3. The earnings trend: Positive. 4. The revenue trend: Positive. 5. The free cash flow: The free cash flow is probably the most important measure of the profitability of the company from the shareholders point of view. The free cash flow can be defined as following: Free Cash Flow = Net Income + Depreciation and Amortization - Capital Expenditures - Change of Working capital The free cash flow of this company seemed to be in the up-ward trend

Free Cash Flow of SYY

600 FCF 200 300 400 500

1996

1998 Year

2000

2002

6. The ROE: relatively high among the S&P 500 companies.

7. The technical chart moving average of stock prices:

SYY - Weekly Stock Prices & Moving Average

Weekly Stock Closed Prices 40 0 07/21/2003 10 20 30

11/10/2003

03/01/2004

06/21/2004

10/11/2004

01/31/2005

Dotted line is the 25 weeks MA. Dashed line is the 40 weeks MA

SYY - MACD & Buy or Sell Signals

Weekly Stock Closed Prices 2.0 0.8 07/21/2003 1.2 1.6

11/10/2003

03/01/2004

06/21/2004

10/11/2004

01/31/2005

Buy (Sell) signal when the histogram cross above (below) the solid line.

8. The relative strength: The relative strength of the stock measures the general move of the stock price in the past few weeks or days in a pre-specified time interval. It indicates over-bought or over-sold depending to whether it is above or below the upper dashed line or the lower dashed line, respectively. Some people use the 20% and 80% as reference lines. However, every stock has its own characteristics, therefore, the reference lines were statistically derived using the 90% and 10% percentiles of the RSI.

SYY - Weekly Stock Closed Prices

Weekly Close Prices 40 25 04/22/2002 30 35

11/11/2002

06/02/2003

12/22/2003

07/12/2004

01/31/2005

Time in weeks

Relative Strength Index (RSI)

20 40 60 80 0 04/22/2002

Values of RSI

11/11/2002

06/02/2003

12/22/2003

07/12/2004

01/31/2005

Time in weeks Values above the upper line (below the lower line) represent overbought (oversold)

9. The AIMS Index: The AIMS index is defined as the ratio of the mean volume of the upweek to the volume of the down-week. When this index is below the lower dotted line, it indicates the greater sale pressure. Again, the reference lines were statistically derived using the 90% and 10% percentiles of the AIMS index.

SYY - Weekly Stock Closed Prices

Weekly Close Prices 40 25 06/03/2002 30 35

12/16/2002

06/30/2003

01/12/2004

07/26/2004

02/07/2005

Time in weeks

AIMS Index
1.2 0.8 06/03/2002 1.0

Values of AIMS

12/16/2002

06/30/2003

01/12/2004

07/26/2004

02/07/2005

Time in weeks AIMS is defined as the ratio of mean volume of up weeks to mean volume of down weeks

10. Performance from 52-week low: If you were to buy this stock at the 52-week low and hold it for one year. The historical returns after the holding of 1-year are shown in the following histogram. In average, you may have about 60% loss.

Probabilities (= Actually Probabilities Multiply By 10)

SYY : 1-Year Return from 52-Week Low

2.5 0.0 -1.0 0.5 1.0 1.5 2.0

-0.5

0.0

0.5

Distribution of 1-Year Returns from 52-Week Low. (Average = -60.76 %)

11. The Value-at-Risk (VaR): A popular measure of risk recently is the so called Value at Risk or VaR. With a pre-specified likelihood (for example, 5% or 10%), this quantity measures the amount of capital one is risking to lose during a given time horizon. For example, this measure will try to tell you, with 5% chance, the value of your portfolio could lose x dollars in a month period of time during the normal market condition. This quantity is proportional to the amount of capital invested and the volatility of the returns of the underlying investment. It is defined as Value at Risk Amount of Capital Invested Standard Deviation of Returns.

Distribution of SYY Weekly Returns

15 0 -0.10 5 10

-0.05

0.0

0.05

0.10

0.15

Vertical solid line is 0. There is 1% chance the loss will be greater than -0.075 Vertical solid line is 0. There is 5% chance the loss will be greater than -0.042

12. The stochastic: The traders may find stochastic as a reference for short term trading. However, for the long-term investors, this is probably not very meaningful.

SYY - Weekly Stock Closed Prices

Weekly Close Prices 40 25 02/11/2002 30 35

09/16/2002

04/21/2003

11/24/2003

06/28/2004

01/31/2005

Time in weeks

Stochastics (K%D)
20 40 60 80 0 02/11/2002

Values of K%D

09/16/2002

04/21/2003

11/24/2003

06/28/2004

01/31/2005

Time in weeks Values greater (smaller) than the upper (lower) line represent over bought (sold)

13. The forecast of stock price: The short-term price forecast according to the Box-Jenkins method. The following graph indicates the forecasted price in the next couple of weeks. The upper and lower dotted lines are the 95% confidence interval boundaries.

Historical Price and Forecast

40 daily closing price 25 0 30 35

50 Time

100

150