ARMK - Embedded Expectations Analysis - 2021 09 03
Aramark (ARMK:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 24.9x Uniform P/E, implying somewhat bullish expectations for the firm. However, although management may have concerns about margins, new business, and costs, market expectations are still too pessimistic, and equity outperformance is likely warranted.Specifically, management may be overstating the potential of their Food Lab launch and their client retention success. In addition, they may have concerns about the margin impact of their ADS rollout, the extent customers will continue to outsource large components of their facilities management model, and their fixed cost normalization. Furthermore, they may lack confidence in their ability to maintain new business activity levels, recover to 2019 performance levels, and sustain revenue growth from First Aid and Restroom Services. Finally, they may have concerns about the pace of the return of businesses to the office, the sustainability of labor credits for furloughed employees, and inflationary cost headwinds.
Although management may have concerns about margins, new business activity, and cost pressures, market expectations are still too pessimistic given management's strong execution and the firm's growth opportunities across fragmented markets. As such, longer-term equity outperformance is likely warranted.
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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