Food, facility, and uniform services company Aramark (NYSE:ARMK) has been a laggard for some time, with the shares trailing its closest peers Compass Group (OTCPK:CMPGY) and Sodexo (OTCPK:SDXAY) over the last few years. This underperformance has come as the company has found it difficult to meet its growth targets, and there is still some skepticism as to whether management will succeed in driving meaningful expense reductions.
I do think the company can and will do better both in terms of revenue growth and margin improvements, and the mid-teens FCF growth that I model would support around 9-10% total return potential. That's a little shy of my typical return goal, and I would like a little more upside relative to the risk of ongoing underperformance relative to the likes of Compass. That said, Aramark does serve sizable markets that can support mid-single-digit revenue growth, and some of the company's early IT-driven cost-reduction efforts do seem to be working, so I can't completely dismiss the bull case.
Aramark Needs To Deliver Better Growth And Improve Margins