We value Aramark on time-weighted FY26/FY27E earnings, based on an EV/EBIT multiple of 14x to derive our $46.50 target price. Our 14.0x multiple equates to a c.13% premium to ARMK’s 2019 average valuation multiple, and is consistent with 5% mid-term growth and reflects the improvement to the growth outlook.

Risks to our target price include: Deteriorating economy – Food and support services businesses that provide services to business and industry or in public facilities, tourist and recreational attractions are particularly sensitive to an economic downturn. An improving economy would be considered an upside risk. 

Intense competition – Competitors have been and may in the future be willing to underbid or accept a lower profit margin or expend more capital in order to obtain or retain business. 

Failure to retain clients – Ability to retain clients generally depends on a variety of factors, including the quality, price, and responsiveness of services, as well as ability to market these services effectively and differentiation from competitors. Retention rate in 2024 was 93.2% (95.2% excluding two large contract exits). 

Potential reduction in outsourcing trends – The business and growth strategies depend in large part on the continuation of a current trend toward outsourcing services. Clients will outsource if they perceive that outsourcing may provide quality services at a lower overall cost and permit them to focus on their core business activities. 

Increases to operating costs – Profitability can be adversely affected by cost increases for food, wages, insurance, utilities, clothing, and equipment, especially to the extent the company is unable to recover such increased costs. The amount of risk that the company bears and profit potential vary depending on the type of contract under which ARMK provides food and support services. 

Any of these downside risks could prevent the stock from reaching our target price