On Thursday, Baird increased its stock price target for ARAMARK Holdings (NYSE:ARMK) to $45.00, up from the previous $44.00, while maintaining a Neutral rating on the stock. Currently trading at $40.76, ARAMARK has delivered an impressive 46.7% return year-to-date and is trading near its 52-week high of $42.49.
According to InvestingPro analysis, the stock appears slightly undervalued based on its Fair Value calculation. The adjustment follows ARAMARK's announcement of significant margin expansion and a notable increase in gross new sales.
ARAMARK, a foodservice, facilities, and uniform services provider, reported a 50 basis point margin expansion and a 21% year-over-year increase in gross new sales, totaling $1.44 billion for the fiscal year 2024.
The company achieved revenue growth of 8.19% in the last twelve months, though InvestingPro data shows it maintains relatively modest gross profit margins of 15.33%. This performance was highlighted as one of the company's strongest years since its initial public offering.
Despite some concerns about lost customers, which were seen as specific issues rather than a trend, the company's underlying retention rates remained stable. Looking ahead to fiscal year 2025, Baird anticipates ARAMARK to experience above-average growth, estimated at around 6.5% organically, alongside continued margin expansion of approximately 50 basis points.
The firm also expects improvements in cash flow and earnings quality for ARAMARK, which are likely to contribute to higher returns on invested capital (ROIC) and potentially trigger new share buyback activities.
Baird's analyst remarked on the need for more debate and controversy to adopt a more positive stance on the stock, but noted that the valuation remains attractive based on earnings per share (EPS) and earnings before interest, taxes, depreciation, and amortization (EBITDA), although it is slightly less appealing when considering free cash flow (FCF).
In other recent news, ARAMARK Holdings has reported significant developments. Truist Securities has maintained a Buy rating on ARAMARK, raising its price target to $46.00, reflecting confidence in the company's potential for valuation growth. The decision follows ARAMARK's mixed financial performance in the fourth fiscal quarter and a forecast for fiscal year 2025 suggesting modest growth.
In the recent earnings call, ARAMARK reported a 10% year-over-year organic revenue growth, a 20% rise in adjusted operating income, and a 35% increase in adjusted EPS on a constant currency basis. Total (EPA:TTEF) revenue for the fiscal year reached $17.4 billion.
The company also announced a new $500 million share repurchase program, signifying strong financial health. For fiscal 2025, ARAMARK projects organic revenue growth of 7.5% to 9.5%, adjusted operating income growth of 15% to 18%, and adjusted EPS growth of 23% to 28%.
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