Last week, you might have seen that Aramark (NYSE:ARMK) released its quarterly result to the market. The early response was not positive, with shares down 8.6% to US$23.78 in the past week. It was a pretty bad result overall; while revenues were in line with expectations at US$3.7b, statutory losses exploded to US$0.80 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the recent earnings report, the consensus from twelve analysts covering Aramark is for revenues of US$13.5b in 2020, implying a definite 15% decline in sales compared to the last 12 months. Earnings are expected to tip over into lossmaking territory, with the analysts forecasting statutory losses of -US$0.68 per share in 2020. Before this latest report, the consensus had been expecting revenues of US$14.3b and US$0.63 per share in losses. So it’s pretty clear consensus is more negative on Aramark after the new consensus numbers; while the analysts trimmed their revenue estimates, they also administered a per-share loss expectations.
The average price target was broadly unchanged at US$29.21, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Aramark analyst has a price target of US$42.00 per share, while the most pessimistic values it at US$20.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast revenue decline of 15%, a significant reduction from annual growth of 2.8% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 12% next year. It’s pretty clear that Aramark’s revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Aramark. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year’s earnings. We have forecasts for Aramark going out to 2024, and you can see them free on our platform here.
Plus, you should also learn about the 5 warning signs we’ve spotted with Aramark (including 1 which makes us a bit uncomfortable) .
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