American food catering and uniforms company Aramark Holdings (ARMK) could be bought by French rival Sodexo (FR:SW), according to Bloomberg News. The two have been in active discussions over a potential takeover in recent months. However, talks are in the initial stages and there is no guarantee a deal would be reached.
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ARMK shares jumped over 12.7% on the news in Wednesday’s after-hours trading, reaching a three-year high. In contrast, Sodexo shares were down 5.3% in Thursday’s early trading hours on the French bourse in reaction to the news.
Aramark’s Potential Acquisition by Sodexo
Aramark’s potential acquisition by Sodexo could face antitrust and monopolistic scrutiny from regulators the world over. The details of the deal remain unknown and no final figure has been assigned to the deal as yet. Aramark’s market capitalization stood at $9.82 billion on September 25, before the reports on the potential deal started surfacing.
Sodexo has been in the news lately, as it served as the caterer in the 2024 Olympics games in Paris. Its interest in the U.S. food catering and facilities management company stems from the ambition to expand its footprint in the international markets.
Here’s Why Aramark Could be of Interest to Sodexo
Aramark’s solid financial performance and growth potential make it an attractive target. The company has exceeded analysts’ earnings per share (EPS) estimates for six consecutive quarters. In Q3 FY24 results, revenues jumped 8% year-over-year, with organic revenue growing 11%. This growth was aided by higher sales volume, beneficial pricing, cost efficiency, and supply chain management. At the same time, on a constant currency basis, adjusted EPS soared 51% compared to Q3 FY23.
Based on the continued business momentum witnessed during the year, Aramark lifted its full-year Fiscal 2024 guidance. For FY24, ARMK estimates organic revenue growth of 10%, up from the prior guidance of 9%, while adjusted EPS is now expected to grow by 35% compared to the prior growth outlook of 30% to 35%. Moreover, Aramark pays a healthy quarterly dividend of $0.09 per share, which represents a yield of 1.03%.
Is Aramark a Good Stock?
Wall Street is highly optimistic about Aramark. On TipRanks, ARMK stock has a Strong Buy consensus rating based on eight Buys and two Hold ratings. Also, the average Aramark Holdings price target of $39.90 implies 7.1% upside potential from current levels. Year-to-date, ARMK shares have gained 33.7%.
