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Investing.com - JPMorgan downgraded Vestis Corp (NYSE:VSTS) from Neutral to Underweight on Monday, while raising its price target to $6.00 from $5.00. The stock, which has declined nearly 62% over the past six months and currently trades around $6.14, receives a "Fair" overall financial health score according to InvestingPro analysis.
The downgrade comes as the uniform and workplace supplies company faces what JPMorgan describes as a "challenging turnaround" following the recent appointment of former UPS executive Jim Barber as Vestis’s new CEO.
JPMorgan cited concerns about Vestis’s ability to rebuild profitable client volumes, calling it a "slow grind" that is further complicated by the company’s substantial debt burden, which stands at 4.2 times net debt to pre-SBC EBITDA.
The firm also flagged potential capital expenditure constraints, noting that Vestis’s current capex budget of approximately 3% of revenues (less than $80 million annually) may prove "unsustainably low" as competitors advance their technology and build new facilities that can cost $25-30 million each.
JPMorgan advised investors to avoid VSTS stock, pointing to "poor fundamentals, organizational instability, and takeover discussions that appear to have stalled without further buyer interest."
In other recent news, Vestis Corp. reported a disappointing second quarter for 2025 with revenues falling short of expectations and a net loss that surprised analysts. The company posted an earnings per share (EPS) of -$0.05, significantly below the forecast of $0.29, with revenue coming in at $665 million against a projected $767 million. These results have led to further scrutiny, as both Moody’s and S&P Global Ratings have downgraded Vestis’ credit ratings due to weaker performance outlooks. Moody’s lowered Vestis’ corporate family rating to B2, citing lowered revenue and earnings expectations for 2025 and 2026, while S&P Global downgraded the company to ’B+’ due to lost business and service issues.
Vestis has been facing challenges with service quality, which has resulted in customer attrition and revenue declines. The company has also shifted its focus to providing quarterly earnings guidance instead of annual guidance, reflecting ongoing uncertainties. In a strategic move, Vestis appointed Jim Barber as the new CEO, effective June 2, 2025, to bring fresh leadership perspectives. The company has also suspended dividends and share repurchases to focus on deleveraging, a decision viewed positively by S&P Global Ratings.
Despite these challenges, Vestis maintains a strong liquidity position, with $28.8 million in cash and $264.3 million available on a revolving credit facility. The company’s outlook remains cautious, with revenue expected to be between $674 million and $682 million for the third quarter. Analysts from Moody’s and S&P Global have highlighted the need for Vestis to improve service quality and customer retention to stabilize its financial performance.
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