On Monday, Stifel, a financial services firm, raised its price target for ARAMARK Holdings (NYSE:ARMK), a leading global provider of food, facilities, and uniform services, from $40.00 to $43.00 while maintaining a Buy rating on the stock. The firm anticipates that ARAMARK will see net new business in fiscal year 2024 (FY24) in the upper half of the 4%-5% of FY23 revenue target. This adjustment comes ahead of the company's fourth fiscal quarter 2024 (F4Q24) earnings report, where ARAMARK is expected to provide its fiscal year 2025 (FY25) guidance.
Stifel projects that ARAMARK will experience margin expansion in FY25, forecasting an increase of 39 basis points to 5.44%, progressing towards the 5.9%+ target for fiscal year 2026 (FY26). The firm also anticipates that ARAMARK will announce a free cash flow (FCF) target for FY25, which is estimated to be in the range of $350 million to $400 million.
The firm has adjusted its F4Q24 estimates for ARAMARK to account for slightly lower revenues, which have been affected by foreign exchange (FX) rates, and a more conservative outlook on seasonal gross margin improvement. Additionally, higher taxes are expected to impact the company's financials for the quarter.
Stifel suggests that ARAMARK's potential for improved capital returns could become a more significant narrative over the next year. This could result in ARAMARK's valuation gap with Compass Group (LON:CPG), a competitor in the foodservice industry, narrowing. The new price target of $43 reflects these expectations and the firm's confidence in ARAMARK's growth trajectory and financial performance.
In other recent news, ARAMARK Holdings has been at the center of acquisition discussions with French competitor Sodexo (EPA:EXHO), a potential merger that could considerably alter the food services industry. Amid these talks, the company reported a record Q3 revenue of $4.4 billion, an 11% year-over-year organic growth, primarily driven by new client acquisitions and effective pricing strategies.
Financial firms have been adjusting their outlooks on ARAMARK, with RBC Capital Markets upgrading the stock and forecasting a low teen compound annual growth rate in Adjusted Operating Income over the next three years. Similarly, Truist Securities has maintained a buy rating and raised the price target for ARAMARK to $42, while slightly lowering the company's earnings per share estimates for fiscal years 2024 and 2025. Citi also upgraded ARAMARK's price target to $40.50, emphasizing the company's international growth and success in the Sports & Leisure segment.
Baird and Stifel have maintained their Neutral and Buy ratings respectively on ARAMARK, closely observing the potential merger with Sodexo. While the potential acquisition is viewed as "incrementally positive" by Baird, Stifel has expressed skepticism regarding the deal's feasibility, citing potential regulatory challenges and financing issues.
Lastly, ARAMARK's CEO, John Zillmer, was recently granted Restricted Stock Units valued at $5 million, contingent upon his continued employment with the company. These recent developments underscore the ongoing strategic and financial maneuvers within ARAMARK.
InvestingPro Insights
ARAMARK Holdings' recent performance and future outlook align with several key metrics and insights from InvestingPro. The company's revenue growth of 22.62% over the last twelve months supports Stifel's optimistic view on net new business. Additionally, ARAMARK's strong return over the last three months, with a 16.89% price total return, and an impressive 55.61% return over the past year, underscore the market's positive sentiment towards the company's prospects.
InvestingPro Tips highlight that ARAMARK is a prominent player in the Hotels, Restaurants & Leisure industry, which aligns with Stifel's comparison to competitors like Compass Group. The company's ability to maintain dividend payments for 11 consecutive years, despite a recent 13.64% dividend growth decline, demonstrates financial stability—a factor that could contribute to the potential for improved capital returns mentioned by Stifel.
While Stifel projects margin expansion, it's worth noting that ARAMARK currently suffers from weak gross profit margins, with a gross profit margin of 16.31% in the last twelve months. This suggests that the company has room for improvement in line with Stifel's expectations for future margin growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for ARAMARK, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.