Don’t wait too long for this stock: Cramer
(Click for video linked to a searchable transcript of this Mad Money segment)
Considering Sysco gets 60% of its sales from the restaurant business, you may be inclined to wait on this stock. Cramer, however, wouldn't do that.
Instead, the "Mad Money" host would take a long hard look at Sysco, right here and right now.
Surprised?
Cramer understands. After all, Sysco is a wholesale supplier of food to restaurants as well as hospitals, nursing homes, colleges, the lodging industry and various industrial caterers.
If the pullback is a referendum on a slower economy, Sysco is hardly the kind of stock that benefits in a slowdown.
Well, first things first. "I'm not recommending this stock because I think the business is about to start booming," Cramer explained.
Nope. This potential 'buy' is about something else - a strategic acquisition.
"Back in early December, Sysco announced its intention to acquire US Foods, the number two domestic foodservice distributor, for $3.5 billion worth of stock and the assumption of $4.7 billion in debt," Cramer explained.
Cramer thinks the deal will drive shareholder value for quite some time to come.
Here's why:
"Right now Sysco has 18% of the food service business, while US Foods has 9%," Cramer said. "After the deal, Sysco will control 27% of this market."
"The next closest competitor has just 4%," Cramer added.
The sheer size of the relative to its rivals should give Sysco a significant competitive edge.
"If you're a major restaurant chain and you want to deal with a national food distributor, Sysco will pretty much be your only choice, because all of the other operators will be too small," Cramer explained.
In turn that should translate into good things for the bottom line.
By acquiring US Foods and eliminating its biggest rival, Sysco will remove an enormous amount of pricing pressure, which means its gross margin should be able to improve," Cramer speculated. And the Street tends to reward improving gross margins.
Now, that's not to say the merger is not without challenges.
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"There are some concerns that the Federal Trade Commission might try to block the deal over anti-trust concerns," Cramer noted. "But I'm not worried. The combined company would have a market share of 27%--that's pretty far from a monopoly. At worst, the FTC might force Sysco to divest some assets in areas where there's too much geographical overlap, but if they have to do that, I think it will be worth it."
Looking at the recent price action, Cramer thinks the stock is a buy at current levels.
"When the news first broke that Sysco was buying US Foods back in December, its stock shot up from $34.31 to close at $37.62," Cramer explained
That's how much the Street liked the deal – typically the acquiring company declines.
However, after the broad market sell-off, Sysco is currently about a $1.50 above where it was trading before anyone even knew about the deal.
"That's like getting this US Foods transaction practically for free. To me that's nuts, and it's the kind of craziness you want to take advantage of, because this stock belongs at a higher level."
Call Cramer: 1-800-743-CNBC
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