SDXAY-Sodexo

[feynmanresearch]

Has any of you guys heard about Sodexo?

 

Summary

 

-Sodexo(SDXOF) has low capital expenditure requirements, high returns on equity and consistent, strong margins.

-The company is slightly overvalued at the current price.

-I believe the company is a great buy and hold candidate once the current price declines by around 10-15%.

-Sodexo is not widely followed by analysts.

-Sodexo does not rely on one or few clients, thus its better prepared to deal with the uncertainties of the future.

 

Company Overview

 

Sodexo(OTC:SDXOF) is a food services and facilities management multinational corporation headquartered in Paris, France. The company operates in 80 countries, with approximately 420,000 employees. Sodexo is very diversified in its operations by serving a multitude of markets, with the majority of their revenues coming from:

 

a) 38% North America

 

b) 37% Continental Europe

 

c) 8% UK and Ireland

 

d) 17% rest of the world.

 

During a recent interview, company's CEO Michel Landel, commented that he foresees opportunities for expansion in North America, South America and the emerging countries.You can view the video below(seekingalpha.com/symbol/SDXAY/videos/1847375).

 

What might be even more impressive than Sodexo's food services business, is the facilities management division. The company truly serves a wide and eclectic array of fields such as: hospitals,clinics,schools from elementary to university, assisted living facilities, military bases, government agencies just to name a few. I view this diversification as a major positive factor in allowing Sodexo to maintain a top position in its industry. Not being reliant on one or a few clients can certainly help Sodexo to cushion against potential adverse future events.

 

Financials

 

Sodexo is operationally sound, as we can see from the long-term debt to total assets ratio of 0.19, which is in line with past 10 years; high, predictable and consistent return on equity for the current year of 18.91%, which is in line with the past 10 years ROE; strong, consistent returns on invested capital(NASDAQ:ROIC) of 15.87%, which again is in line with the ROIC for the past 10 years. Lastly, Sodexo enjoys healthy gross margins of 15.93%, which are similar to the past 10 years gross margins.

 

Valuation

 

The company sports a forward P/E of 18.2,P/B of 3.3, P/S of 0.59, P/FCF of 18.38( FCF yield of 5.44%), EV/EBIT of 3.48 and a dividend yield of 2.20%. While the company does not exactly scream cheap, there are worse companies out there.

 

In order to value the company, I assumed a discount rate of 10%, terminal growth rate of 4%, and EPS growth rate of 10% during the next ten years. Using those parameters, we get an estimated intrinsic value range of $82-85, which as I mentioned above, makes the company slightly overvalued at current levels;however, I definitely recommend looking into the company, once the shares reach mid 70's level.

 

Future

 

I anticipate the company to remain a strong, leading player on its field, due to its operational excellence, forward looking vision in serving its clients with utmost care, strong reputation in serving clients in many different fields and expansion opportunities in North American markets.

[jawn619]

I agree it is a great business. The quality of food is usually lower, but because of they have economies of scale, they are able to take afford insurance when feeding large groups of people. I remember the students at my college complained about the quality/taste/price of the food court, but that didn't stop them from going. Customer's are institutions and revenue and profits will probably be consistent and predictable. Comparable business is Aramark

[feynmanresearch]

I agree it is a great business. The quality of food is usually lower, but because of they have economies of scale, they are able to take afford insurance when feeding large groups of people. I remember the students at my college complained about the quality/taste/price of the food court, but that didn't stop them from going. Customer's are institutions and revenue and profits will probably be consistent and predictable. Comparable business is Aramark

 

Thank you for your input. I saw some student protests on YouTube- to me, it doesn't seem like there's too much substance to their arguments.

I am also surprised how under the radar this company is.I found it through playing around with a screener.

[kirkomi]

 

An oldish article which I remember reading a few years ago on it.

 

http://www.gurufocus.com/news/221668/stocks-to-buy-on-dips-sodexo-xparsw