ARMK - Embedded Expectations Analysis - 2020 09 03
Aramark (ARMK:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 38.1x Uniform P/E. Even at these levels, the market has bearish expectations for the firm. Although management's concerns about Business & Industry customers, growth opportunities, and deleveraging ability suggest the potential for near-term headwinds, market expectations are far too bearish, and longer-term equity outperformance is likely warrantedSpecifically, management may lack confidence in their ability to improve the valuation of the Uniform services business, continue generating new business wins, and deleverage. In addition, they may have concerns about the recovery of their Business & Industry customers, the sustainability of PPE demand, and further costs from prescriptive labor laws and regulations in countries they operate. Moreover, management may be exaggerating the growth opportunities of the business and they lack confidence in their ability to stay flexible to the current environment. Furthermore, they may have concerns about the sustainability of higher education reopenings
Although management's concerns about coronavirus, their pipeline, and capex suggest the potential for near-term headwinds, market expectations are far too bearish given the firm's large footprint and management's strong alignment for growth, and longer-term equity outperformance is likely warranted for ARMK
Aramark is a provider of food, facilities and uniform services. The company manages its Food and Support Services (FSS) business in segments split between its United States and International operations. The company's FSS segments manage a number of interrelated services-including food, hospitality, procurement and facility services-for school districts, colleges and universities, healthcare facilities, businesses, sports, entertainment and recreational venues, conference and convention centers, national and state parks and correctional institutions. The company's Uniform and Career Apparel segment provides employee uniform solution, including design, sourcing and manufacturing, delivery, cleaning and maintenance.
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