Aramark Services Reports Strong Q4 Results

Jefferies analysts increased their price target for ARAMARK (NYSE:ARMK) to $37 from $35, maintaining a Buy rating on the stock.

The analysts adjusted fiscal 2024 estimates to account for higher-than-expected foreign exchange headwinds but remain optimistic about the company's prospects.

The analysts highlighted attractive organic growth driven by strong outsourcing trends, favorable pricing, and continued new business wins.

The analysts also anticipate that ARAMARK's operating income margin will improve as new business matures, inflation eases, and cost-saving measures take effect.

Aramark Services (NYSE:ARMK) shares rose 8% since the company reported its Q2 earnings results, with EPS coming in at $0.28, better than the Street estimate of $0.26. Revenue was $4.6 billion, beating the Street estimate of $4.39 billion.

Furthermore, there was a wide-ranging increase in revenue throughout the company's portfolio and geographical locations. With regards to the planned Uniform spin-off, the company maintains its expectation of completing the transaction by fiscal year 2023.

Lastly, the company maintained its commitment to deleveraging the balance sheet and expects leverage to be below 4.0x by fiscal year-end aided by free cash flow guidance of approximately $300 million and earnings growth.

Aramark Services (NYSE:ARMK) shares rose 8% since the company reported its Q2 earnings results, with EPS coming in at $0.28, better than the Street estimate of $0.26. Revenue was $4.6 billion, beating the Street estimate of $4.39 billion.

Furthermore, there was a wide-ranging increase in revenue throughout the company's portfolio and geographical locations. With regards to the planned Uniform spin-off, the company maintains its expectation of completing the transaction by fiscal year 2023.

Lastly, the company maintained its commitment to deleveraging the balance sheet and expects leverage to be below 4.0x by fiscal year-end aided by free cash flow guidance of approximately $300 million and earnings growth.

RBC Capital provided its outlook on Aramark (NYSE:ARMK) ahead of the upcoming Q2/23 earnings report on May 9, expecting in-line quarterly revenue with the sustained new business win, return to the office and pricing tailwinds.

The analysts estimate Q2 revenue of $4.41 billion, AOI of $200 million (4.5% margin), slightly below the consensus of $208 million (4.7% margin), and EPS of $0.24, in line with the Street estimate of $0.24.

Positively, food inflation (food PPI) has started to roll over, which along with pricing increases, bodes well for margin expansion going forward. The analysts expect the company to reiterate its 2023 guidance and provide an update on the progress on the spin-off of the Uniform business expected by the end of 2023.

RBC Capital analysts provided their outlook on Aramark (NYSE:ARMK) ahead of the upcoming Q1 results and raised their price target to $48 from $45.

The analysts expect a modest upside to Q1/23, given the further improvement in RBC's proprietary GOAT Index while encouraging office occupancy data bodes well for continued B&I recovery. Moreover, revenues are recession-resilient, and the analysts expect sustained momentum in new business wins in key verticals such as higher education, K-12, healthcare, and international.

The analysts estimate Q1 revenue of $4.555 billion, modestly above the Street estimate of $4.527 billion, and EPS of $0.42, below the Street estimate of $0.44.

Aramark (NYSE:ARMK) has benefited from significantly better new business wins in fiscal 2021, driven by all three key segments: first-time outsourcing, wins from regional players and wins from large players.

As well as higher new business, the company has improved its retention rate to 95.5%, which is 150bp better than the average for the previous 5 years. The company believes that this is being driven by improved processes and that it is sustainable in the future. The company continues to have a target of delivering retention rates of 97% over time.