Aramark Analyst Roundup On Q4 Results

Aramark ARMK posted better-than-expected FYQ4 revenue Wednesday with strong outlook for 2015.

Investors responded positively and the stock closed Wednesday at $28.55, up 1.67 percent.

Bank of America and Morgan Stanley commented on the company’s Q4 results. Below are thoughts from the firms’ analysts along with current ratings and price targets.

Bank of America - Buy, $33 price target

"ARMK reached its prior plan for $200-300mn in gross cost savings from productivity initiatives a year ahead of schedule. The company is embarking on a new two-year plan for $100mn which is expected to save an incremental $300mn in gross costs over three years. As it re-invests in people and technology, ARMK expects net savings of over $30mn per year, with 20bp of annual adjusted operating margin improvement. Cost savings will come from 80 percent food & labor/20 percent SG&A over time. Our model forecasts 20bp of adjusted operating margin expansion in FY15. Aramark is executing well and should continue to benefit from the global trend in food & support services outsourcing. Our $33 target is based on 10.1x CY15E adj. EBITDA, or 20.4x adj CY15E EPS. This is below peers on EV/EBITDA basis (11x CY15E) but a premium on EPS (19.4x)."

Morgan Stanley - Overweight, $32 price target

"Overall, Aramark remains on track for continued margin expansion and 3-5 percent y/y top line growth. Our Overweight rating is based on our view that 1) adj. EPS grows faster than Compass' due to deleveraging. 2) Significant margin expansion (our model assumes 18 bps of annual gains but we can easily envision 30 bps a year through FY19; and 3) Cheap valuation (trades at discount to CPG despite faster growth and looks cheap on Sum-of-the-Parts). Key risks include the potential for stagnant margins, increasing capex needed to win business, and falling retention levels. We are increasing our FY15E adj EPS to $1.65 from $1.61 (Aramark basis). Our DCF-derived 12 month price target remains $32, on a lower risk free rate, 4Q14 balance sheet, offset by higher capex."