ARMK - Embedded Expectations Analysis - 2021 03 05
Aramark (ARMK:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 42.4x Uniform P/E. At these levels, the market has somewhat bullish expectations for the firm. Although management's concerns about sales growth resources, contract renegotiations, and ABS implementation suggest the potential for near-term headwinds, market expectations are still too bearish, and longer-term equity outperformance is likely warrantedSpecifically, management may lack confidence in their ability to continue to invest in their growth initiatives, recover pre-COVID margins, and increase sales resources for their food service businesses. Furthermore, management may have concerns about their contract renegotiations and modifications, their hospitality-focused restaurant operations business mix, and macroeconomic uncertainties. They may also lack confidence in their ability to strictly control operational costs, return value to shareholders through dividends, and sustain strong cash flow. Moreover, they may be overstating the progress of ABS implementation across their enterprise and they may be downplaying concerns about the impact of customer business shutdowns and declines in their capex
Although management's concerns about sales growth resources, their contract renegotiations, and ABS implementation suggest the potential for near-term headwinds, market expectations are still too pessimistic. As such, 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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