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On Tuesday, Citi analyst Leo Carrington increased the price target on ARAMARK Holdings (NYSE:ARMK) shares to $49.00, up from the previous target of $48.00, while reiterating a Buy rating on the stock. Currently trading at $34.49, InvestingPro analysis suggests the stock is slightly undervalued. The revision comes as Citi updates its financial model to reflect foreign exchange (FX) impacts and anticipates a shift in Adjusted Operating Income (AOI) distribution between quarters.
Carrington noted that while the fundamental full-year 2025 estimates for organic growth and AOI margin remain unchanged, the AOI for the second quarter is now projected at $202 million, down from $208 million. This adjustment is attributed to fewer operating days expected in North America during the second quarter. Despite this, the analyst expressed optimism about ARAMARK’s growth prospects, citing positive signs such as employment indicators in key sectors, volume growth from return-to-office trends, and recent contract wins. The company’s revenue growth of 5.84% and market capitalization of $9.12 billion reflect its significant market presence. For deeper insights into ARAMARK’s financial health and growth potential, InvestingPro subscribers can access comprehensive analysis and additional metrics.
The analyst also highlighted the company’s supportive fundamental growth outlook, which is bolstered by the increasing trend of outsourcing—a service that is particularly valuable to clients in times of economic uncertainty. ARAMARK’s stability is evidenced by its 12-year track record of consistent dividend payments and a solid Financial Health Score of "GOOD" from InvestingPro. In contrast to a recent profit warning from competitor Sodexo (EPA:EXHO), which pointed to challenges in the North American education sector, Carrington does not see a direct correlation affecting ARAMARK.
The slight increases of 0.3% and 0.5% to the fiscal years 2025 and 2026 earnings per share (EPS) estimates, respectively, are solely due to FX considerations. These adjustments have led to the new price target of $49, which is based on the same valuation methodology as before.
Carrington’s commentary and the updated price target reflect a positive outlook for ARAMARK, emphasizing the company’s ability to navigate a volatile economic landscape while capitalizing on growth opportunities in its industry.
In other recent news, Aramark has issued €400 million in senior unsecured notes with a 4.375% interest rate, set to mature in 2033. This move is part of Aramark’s strategy to manage its debt efficiently, with proceeds earmarked for repaying €325 million of senior notes due in 2025 and for general corporate purposes. Additionally, the company has secured a $1.395 billion term loan, referred to as the U.S. Term B-8 Loans, to refinance existing loans and redeem senior notes due in 2025. This loan, maturing in 2030, aims to improve Aramark’s financial flexibility and debt profile.
In another development, UBS has adjusted its price target for Aramark shares to $45, maintaining a Buy rating. The adjustment is based on a 12X enterprise value to EBITDA multiple, reflecting the company’s margin recovery efforts. Despite the price target reduction, UBS continues to support Aramark’s stock due to ongoing financial performance improvements. These developments highlight Aramark’s active approach to managing its capital structure and financial health.
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