Food (service) for thought
11/07/17
With the overall market still hovering near record highs, many stocks have bumped against individual resistance levels and challenged recent or historical highs. Food-service supplier Sysco (SYY)—typically seen as a “defensive” stock—hit the daily double last Friday: It locked in its 11th consecutive weekly high, and topped the record high it set almost a year ago.
Sysco (SYY) 9/11/17–11/07/17

Source: OptionsHouse

Sysco’s sector, Consumer Staples, racked up a good first half in 2017, gaining roughly 11% by mid-year, but then stumbled into a downtrend that by early November had cut its YTD gain to around 3%. Meanwhile, SYY limped into 2017 after posting an all-time high of $57.07 in December 2016. But the stock shed 12% into early February (note the huge spike low on the daily chart), rebounded to come within a dollar or so of its record high in May, then sold off again with its sector into early July.

Since then, though, SYY bulls have looked a little hungrier. The stock outperformed its sector by rallying around 16% off its July low and, most recently, posted big up days on October 31 and November 3 that helped take SYY to a record intraday high of 57.23 and high close of $56.66—all in time for today’s earnings release. 

Sysco (SYY) - 5/1/16 - 11/6/17

Source: OptionsHouse

Sysco beat estimates on both earnings ($0.74 vs. $0.73) and revenue ($14.65 billion vs. $14.46 billion), but in early trading Monday, at least, it looked like traders had already priced in the good news: The stock tanked more than 4% intraday, right into the middle of the September-October trading range. It looked like a classic case of a market hitting its head on resistance and getting a terrible headache.

It’s worth noting, though, the company has missed quarterly EPS estimates only twice over the past two years,and during this period the stock was up a week after earnings five of eight times for an average gain of 1.68%. The stock’s performance immediately after earnings has often been mixed, although rarely as negative as today’s big sell-off.

Decoupling the price action from the earnings event offers yet another perspective. Sysco’s history after similar events over the past 30 years (rallying more than 2% intraday and then dropping at least 4% intraday one day later) points to the potential for a bounce: the stock was typically higher one to three days later, with better than average odds for a higher close. And Sysco’s performance after all days that closed 3-5% lower following an up day (58 examples) was net positive over the next week.

The stock now has more than $3 of range to play with between Friday’s high and yesterday’s low. Even if the resistance ultimately holds, the stock may regain its footing temporarily if it can remain above Monday’s low.

 

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1. Earnings Whispers: www.earningswhispers.com/epshistory/syy. 11/06/17.