Jefferies has made a bullish move on Vestis Corp (NYSE: VSTS), raising the stock's price target to $18.00, up from the previous target of $14.00.
The firm has maintained a Buy rating on the shares, signaling confidence in the company's prospects. The adjustment in the price target reflects Jefferies' anticipation of a potential full acquisition of the company.
The expectation is that not only strategic buyers but also private equity firms might be interested in making a bid for the company. This potential buyout is a key factor in the revised price target.
Apart from the buyout scenario, Jefferies sees an improvement in Vestis Corp's fundamentals over the next 12 months. The company is expected to recover from previous customer losses and benefit from a corporate reorganization.
In summary, Jefferies' new price target for Vestis Corp reflects both the potential for an acquisition and the anticipated improvement in the company's business fundamentals. With the stock's current valuation considered attractive, the firm advises that the shares are poised for positive returns.
In other recent news, Vestis Corporation has been involved in several significant developments. The company announced that Timothy Donovan, the Executive Vice President, Chief Legal Officer, and General Counsel, will extend his tenure beyond the previously planned retirement date.
Vestis also agreed to sell its 39% equity interest in Aramark Uniform Services Japan Corporation to Mitsui & Co., Ltd. for approximately $37 million, a move aimed at reducing its debt.
Simultaneously, Vestis has been discussing a possible acquisition with Elis SA. Amid these talks, analysts from Stifel and Baird have maintained their hold and neutral ratings on Vestis, respectively.
In its fiscal third quarter 2024 earnings report, Vestis disclosed a 1.6% decrease in revenue year-over-year and a 260 basis point reduction in adjusted EBITDA margin, now standing at 12.4%. The adjusted EBITDA for the quarter was $87 million, consistent with the previous quarter but down $20 million year-over-year.
Despite these figures, Vestis has seen growth through new business wins and improved customer retention rates. The company's Board of Directors approved a quarterly cash dividend of $0.035 per share. Vestis anticipates a sequential decline in EBITDA in the fourth quarter due to non-repeating one-time benefits from the third quarter, but targets a leverage ratio between 1.5 and 2.5 times.
InvestingPro Insights
Vestis Corp's (NYSE:VSTS) recent performance and financial metrics align with Jefferies' bullish outlook. According to InvestingPro data, the company has shown a strong return of 27.89% over the last three months, supporting the analyst's positive view. This aligns with an InvestingPro Tip highlighting the company's "Strong return over the last three months."
The company's P/E ratio of 14.32 suggests a relatively attractive valuation, which corroborates Jefferies' observation that Vestis Corp's shares are trading at a discount compared to industry peers. Additionally, an InvestingPro Tip indicates that the company has "Liquid assets exceed short term obligations," which could be appealing to potential acquirers and supports the firm's financial stability.
While Jefferies anticipates improvements in Vestis Corp's fundamentals, it's worth noting that the company's revenue growth has been modest at 1.61% over the last twelve months. However, with an EBITDA of $334.24 million and a gross profit margin of 29.77%, the company demonstrates a solid financial foundation that could attract strategic buyers or private equity firms.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 5 more InvestingPro Tips available for Vestis Corp, providing a deeper understanding of the company's financial health and market position.
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