Aramark (NYSE:ARMK) recorded lower-than-expected cash burn during the downturn and has greater sales opportunities on a COVID-19 recovery, according to Goldman Sachs.
The Aramark Analyst: Stephen Grambling upgraded Aramark from Neutral to Buy, raising the price target from $23 to $36.
The Aramark Thesis: All segments of Aramark could return to pre-COVID levels faster than what the consensus estimates reflect, Grambling said in the note.
“Given non-discretionary nature of services offered by ARMK (e.g. Food service and uniform service), we expect fundamentals to rebound as schools/malls/stadiums/office and other public spaces reopen,” the analyst wrote.
He added, “In our view, COVID-related disruptions will negatively impact operations of smaller regional food service players and in-sourcing arrangements given concerns around hygiene and safety standards. We believe these concerns could in-turn lead to share gains for institutional players like Aramark.”
Grambling noted the new contract wins indicate improved top-line and margin performance going ahead. If management is successful in improving retention rates and the expected synergies from the AmeriPride acquisition are realized, further margin expansion can be achieved.
ARMK Price Action: Shares of Aramark had appreciated by 3.4% to $28.92 at the time of publication Wednesday.