Value Line has initiated coverage of ARAMARK Holdings (ARMK) in its flagship product The Value Line Investment Survey. The company operates in the customer service business across several sectors, including food, facilities, and uniforms. Its over 270,000 employees serve people in approximately 22 countries worldwide. It is recognized as a leader in its industry around the globe.
Davre Davidson formed the starting company in 1936, in an attempt to put vending machines in factories and offices. He later merged his business with that of William Fishman, who ran a vending machine company in Chicago. The combined entity’s operations mainly served the West Coast and Midwest initially, but it branched out to the East Coast with its acquisition of Philadelphia-based Slater System, a manual food service business, in 1961. Since then, the company has grown tremendously, now providing a wide range of diversified services to many industries. The bulk of its business is done in North America, and it caters to education, healthcare, business and industry, sports, leisure, and corrections facilities.
The company currently operates in three main business segments: Food and Support Services North America (69% of 2013 sales); Food and Support Services International (21%); and Uniform and Career Apparel (10%). Through these units, ARAMARK enables its customers to focus on their core offerings, while essentially picking up the slack by supporting operations. For example, within the Business and Industry sector, ARAMARK offers services such as operational maintenance, workplace planning, energy management, and integrated facility management, which allow its customers to focus on their business needs.
ARAMARK, which is quite large in terms of market capitalization ($6.3 billion), has logged consistent top-line gains over the past few years. Sales reached $13.95 billion in 2013, advancing a steady 3% over the 2012 tally. Meanwhile, net profit fell 32%. Going forward, however, earnings should bounce back amid further sales growth and better margins. Indeed, the drop in profits last year appears to be only a blip in the company’s performance.
Its most recent quarter was decent, as ARAMARK logged a top-line gain of 6%, compared with the year-earlier figure, with earnings of $0.21 a share, slightly ahead of the 2013 result. Meantime, management supplied guidance that calls for sales growth of 3%-5% in 2014, which should drive a healthy earnings performance. Further out, the top-line will likely continue to advance, albeit at a slower pace. And, earnings ought to grow at a nice clip, amid wider margins.
ARAMARK has had a long history as both a private and a public enterprise, volleying back and forth over the years. Most recently, on December 12, 2013, the firm began trading on the New York Stock Exchange under the symbol ARMK. It is currently headquartered in Philadelphia.
The stock has enjoyed healthy momentum since its most recent debut, rising roughly 35% since then. It still appears to have room to run, as well. And, despite just completing its public offering, management recently declared a quarterly dividend of $0.075 a share, which it is expected to increase in the years ahead.
That said, ARAMARK’s short trading history makes growth prospects a bit murky, as does its highly leveraged balance sheet. Indeed, the company had over $5 billion in debt (77% of capital) and just about $115 million in cash as of December 31, 2013. Therefore, investors will likely want to exercise some caution here.
We suggest interested investors consult our full-page report on ARAMARK in Issue 9 of The Value Line Investment Survey, as well as any supplementary reports that may follow in response to newsworthy items involving the company.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.