J P M O R G A N
North America Equity Research
16 October 2023
Vestis
Initiation
“It All Comes Out in the Wash”: Vestis’ Growth
Transformation Has Risks, Yet Opportunity and
Valuation Are Compelling; Initiating at OW with $20 PT
Overweight
VSTS, VSTS US
Price (13 Oct 23):$14.50
Price Target (Dec-24):$20.00
We are initiating coverage of Uniform Services provider Vestis (VSTS) with an
Overweight (OW) rating and a December 2024 price target of $20 (38% upside).
Following Vestis’ spin-off from Aramark, VSTS shares trade at levels that place the
stock firmly in the “value” category. However, in researching Vestis, we are
increasingly confident in the growth transformation ahead, although we appreciate
there are risks with an untested firm debuting with significant financial leverage.
We have researched the Uniform Services sector for 15 years, including Vestis
as a subsidiary of Aramark, and are encouraged by the company’s recent
business improvements under a new Vestis management team. We also find
leadership’s plans to drive profitable organic revenue growth acceleration, via
enhanced cross-selling and network density, to be both credible and specific. We
further see ample white space in the broader market for Uniform Services allowing
Vestis to capture healthy levels of new business. We invite observers of Vestis, as
well as peers Cintas and UniFirst, to peruse this initiation to re-familiarize
themselves with the broader Uniform Services industry (starting page 7).
Business & Information Services
•
Compelling opportunity to accelerate organic growth: We expect Vestis to
achieve a +5% organic, constant currency (o/cc) revenue CAGR prospectively
through C2025E, well above the firm’s ~2% historical growth rate. We find
leadership’s plans for driving growth-oriented operational improvements to be
detailed, data-driven, and supported by recent concrete proof points and action
items around each retention, cross-sell, and new account wins.
Q1
Q2
Q3
Q4
FY
•
Margin improvement from route density: Vestis’ renewed focus on driving
route density through cross-selling, coupled with better asset utilization and the
recently-completed implementation of an enterprise-wide CRM system
(called ABS), should drive compelling incremental margins alongside tighter
inventory management.
•
Scaled Uniform Services players have ample room for growth: As of 2022,
Vestis holds a 5% share of the U.S. addressable market for Uniform Services,
based on our TAM estimate of $45bln. Nearly 75% of the potential domestic
market opportunity is either controlled by regional/local players or presently
unvended, by our calculations.
•
We initiate at Overweight: Our Dec 2024 price target of $20 (38% upside) is
based on a P/E multiple of 15.3x applied to our C2025E adjusted EPS estimate
(post stock-based compensation). On an NTM basis, the VSTS stock currently
trades at 12.4x P/E, a notable discount to peers CTAS (34.8x) and UNF (20.5x).
Presently, we gauge that the VSTS stock should trade at more UNF-like
multiples but see a route to the VSTS stock trading at multiples somewhere in
the (very wide) range between these two peers.
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
Bloomberg JPMA STEINERMAN <GO>
Alexander E.M. Hess, CFA
(1-212) 622-8331
alexander.hess@jpmorgan.com
Stephanie Yee
(1-212) 622-5032
stephanie.yee@jpmorgan.com
J.P. Morgan Securities LLC
Quarterly Forecasts (FYE Sep)
Adj. EPS
2022A
2023E
0.34A
0.36A
0.42A
0.43
1.55
2024E
0.21
0.23
0.29
0.31
1.05
Sources for: Style Exposure – J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates.
See page 50 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
Summary Investment Thesis and Valuation
Price Performance
Abs
Rel
JPMORGAN
YTD
-
1m
-
3m
-
12m
-
Company Data
Shares O/S (mn)
52-week range ($)
Market cap ($ mn)
Exchange rate
Free float(%)
3M - Avg daily vol (mn)
3M - Avg daily val ($ mn)
Volatility (90 Day)
Index
BBG BUY|HOLD|SELL
131
20.25-14.23
1,904.92
1.00
99.6%
RUSSELL 2000
-
Key Metrics (FYE Sep)
in
Financial Estimates
Revenue
Adj. EBITDA
Adj. EBIT
Adj. net income
Adj. EPS
BBG EPS
Cashflow from operations
FCFF
Margins and Growth
Revenue growth
EBITDA margin
EBITDA growth
EBIT margin
Net margin
Adj. EPS growth
Ratios
Adj. tax rate
Interest cover
Net debt/Equity
Net debt/EBITDA
ROCE
ROE
Valuation
FCFF yield
Dividend yield
EV/Revenue
EV/EBITDA
Adj. P/E
FY22A
FY23E
FY24E
FY25E
-
2,821
384
274
204
1.55
233
170
2,959
413
297
137
1.05
244
239
3,107
456
334
165
1.25
279
269
-
13.6%
9.7%
7.2%
-
4.9%
13.9%
7.6%
10.0%
4.6%
(32.7%)
5.0%
14.7%
10.6%
10.7%
5.3%
19.8%
-
25.7%
NM
1.4
3.6
27.4%
42.2%
25.7%
3.7
1.2
3.1
14.8%
13.5%
25.7%
4.1
1.0
2.5
16.7%
14.4%
-
8.9%
9.3
12.6%
13.9
14.1%
11.6
Investment Thesis
Vestis is the second-largest provider in the attractive Uniform
Services industry. Revenues at Vestis are largely earned from
weekly customer interactions along dedicated routes, resulting
in a scalable business model with less volatility and compelling
incremental margins from both volume growth and added route
density.
Over the last decade, Vestis’ organic revenue growth lagged the
industry. We observe that a new management team has
reinvigorated the company to drive both enhanced organic
revenue growth and meaningful margin expansion. Over the last
two years, Vestis’ new leadership team has been building out
credible proof points that the firm’s growth transformation is
progressing well and we find management’s data-driven plans
for future profitable growth compelling.
Valuation
We are establishing a Dec 2024 price target of $20 (38% upside)
for VSTS shares. Our PT is based on a P/E multiple of 15.3x
applied to our C2025E adjusted EPS estimate (post stock comp).
On an NTM P/E basis, the VSTS stock currently trades at 12.4x,
a notable discount to peers CTAS (34.8x) and UNF (20.5x). We
gauge that the VSTS stock should trade at more UNF-like
multiples now but see a route to the VSTS stock trading at
multiples in the (very wide) range between its two public peers.
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg Finance L.P. and J.P. Morgan estimates for all other tables. Note: Price history may not be
complete or exact.
2
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Table Of Contents
Investment Thesis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risks to Rating and Price Target . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Company Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Industry Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Uniform Services Industry History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
The Uniform Services Business Model . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Measuring Fundamental Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Total Addressable Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Company Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Vestis’ History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
What Does Vestis Provide? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Who are Vestis’ Customers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Spin-Off Motivations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Vestis Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Vestis’ Operating Footprint vs Peers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Our View on Vestis’ Growth Transformation. . . . . . . . . . . . . . . . 32
Where Might We Be Wrong?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Why We Like the Vestis Growth Transformation . . . . . . . . . . . . . . . . . . . . 34
Industry Transformation Case Study: G&K Services. . . . . . . . . . . . . . . . . 39
VSTS Valuation and Price Target. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Price target derivation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Vestis Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Investment Thesis
Vestis (VSTS)
Overweight
The authors wish to thank Judson Lindley
for his contribution to this research report.
A growth transformation for a business we know well
Our J.P. Morgan team have been researching the North America Uniform Services
industry for 15 years, having first initiated coverage of Cintas, G&K Services, and
UniFirst in 2008. We began covering Vestis’ long-time former parent, food and facilities
service provider Aramark (ARMK; OW), in early 2014 following the firm’s (third) IPO.
We have now met with and heard from Vestis’ present management team on a number of
occasions over the last two years (CEO Kim Scott was appointed to run Aramark
Uniform Services in Oct. 2021). Based on our work researching the Uniform Services
industry, we have grown increasingly confident that the present leadership team
possesses a convincing strategy to drive a growth transformation at Vestis. Also, we
consider Uniform Services to be an excellent business model.
Aramark entered the Uniform Services industry in 1977 at a time when conglomerates
were more popular. In the 1980s and 1990s, Aramark Uniform Services (AUS)
expanded via M&A through a number of scaled acquisitions. However, compelling
synergies never materialized between uniform and food/facilities services. Additionally,
high levels of debt at Aramark led to periods where the AUS business was run as a
source of cash flow for the parent. Over the last decade, Vestis’ organic revenues
have grown ~2% per year, lagging the industry.
In early 2018, Aramark reversed course and acquired Uniform Services provider
AmeriPride for $1 billion, funded principally with new debt. At acquisition, AmeriPride
added ~$600mm to the AUS revenue base of $1.56 billion. Despite ~$70mm in outlined
cost/operational synergies from acquiring AmeriPride, the two years prior to the deal
were the high-water mark for AUS margins.
In October 2021, a new Aramark management team hired Kim Scott as President and
CEO of Aramark Uniform Services (AUS). Kim’s hire presaged the spin-off of AUS
announced in May 2022, and completed in September 2023. The Aramark Uniform
Services business was rebranded as Vestis with the spin. Under its own new
management team, we gauge that Vestis has been reinvigorated to drive both
enhanced organic revenue growth and meaningful margin expansion. Over the last
two years, Vestis’ leadership team has been building out credible proof points that the
firm’s growth transformation is progressing well— including enhanced penetration of
ancillary products and services, improved retention rates, and stronger performance
winning new accounts. Looking ahead, we find management’s data-driven plans for
enhancing client service, winning new business, and running a more efficient route
network to be compelling.
Public uniform providers benefit from ample white space and strong outsourcing
trends
As of 2022, Vestis had 5% market share of the addressable market for Uniform Services,
based on our estimate of a $45bln total addressable market in the U.S. alone. Nearly
75% of the market is served by smaller regional/local providers, or not vended at all,
indicating ample white space for Vestis to organically grow revenues at compelling
rates. Also, the industry is benefiting from strong first-time rental trends in newer end
markets, as sanitation standards have become increasingly stringent and worker safety
4
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
concerns are more paramount.
Vestis has a compelling opportunity to narrow the growth gap versus peers
We expect Vestis to accelerate organic revenue growth from the firm’s historical ~2%
CAGR (2014-2022) into the 5+% range prospectively. Such growth would be in-line
with our expectations for peer UniFirst (UNF) and slightly below what we expect for
industry leader Cintas (CTAS). By our observation, organic, constant currency (o/cc)
revenue growth is the top determinant of valuation within the Business Services sector,
and we expect enhanced o/cc revenue growth will benefit the VSTS multiple.
Early investments in the business AUS followed a late 2019 leadership change at former
parent Aramark, especially the network-wide rollout of a work order management /
CRM system called ABS (completed fall 2022). Now with its own management team,
we view Vestis as poised for sustainably accelerated organic revenue growth via a datadriven transformation strategy. Early proof points — via metrics on retention, cross-sale,
and new business wins — are encouraging. We also appreciate that the new Vestis
leadership team is focused on driving profitable growth from better route
management, asset utilization, and instilling a new culture with a growth mindset.
Similar transformations have succeeded in Uniform Services
Our equity research team covered Uniform Services provider G&K Services (previously
publicly traded) for almost a decade prior to its acquisition by Cintas. Until the arrival of
CEO Doug Milroy in 2009, G&K had a long track record of below-industry organic
revenue growth rates and operating margins. Doug’s ultimately successful strategic plan
to transform G&K focused on customer retention, route efficiency/density, sales force
productivity, and overhead cost management. By the time G&K was acquired by
Cintas in 2017, G&K had grown EPS at a ~16% CAGR from its trough year and
the GK stock price appreciated an annualized 19% over eight years.
Risks to Rating and Price Target
Above average financial leverage
Vestis was spun off from Aramark as a highly encumbered company, with $1.5bln in
outstanding debt. We expect the firm’s net leverage to be in the range of ~3.6x LTM
EBITDA (post stock-based compensation) for the Sept. 2023 quarter (4QF23E). If we
further deduct the full pro-forma $20-25mm in annual public company costs, which
Vestis has yet to incur, that figure would be higher. We do think the firm’s present level
of net leverage could preclude Vestis from participating in scaled M&A. Also, we find
Vestis’ intention to declare a dividend as soon as November to be a headscratcher
given the balance sheet.
Highly unionized frontline workforce
Creating a growth culture will be an important piece of driving the fundamental
improvements management foresees. Pivoting an organization’s operating priorities is
rarely frictionless, especially with a unionized workforce. Over half of Vestis’ workforce
and ~70% of frontline workers (plant employees/drivers) are covered by collective
bargaining agreements. By comparison, both Cintas and UniFirst have low single digit
% union shares of their workforces. Union relationships can be mutually beneficial
when they help firms attract workers at scale and curb employee turnover. However,
unions can also impede organizational change if they sense management’s strategy does
5
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
not sufficiently benefit their constituent members, including via work stoppages.
Uniform Services is a cyclical industry
Uniform Services companies, including Vestis, are more cyclical than some of the other
Business Services companies we cover and are sensitive to changes in macroeconomic
factors, such as GDP growth and employment. While our JPM economists no longer
expect a U.S. recession is on the immediate horizon, we acknowledge the
macroeconomic outlook remains uncertain following a period of meaningful interest
rate increases. Revenues at Vestis’ predecessor, Aramark Uniform Services (AUS),
declined organically by 9% (on a Same Week Basis) in F2009 and another 6% in F2010,
in the aftermath of the Global Financial Crisis. Aramark Uniform organic revenues
declined -7% y/y in C2020, due to the COVID-19 lockdowns/recession. Note that
Uniform Services providers can realize revenue drags on a lagged basis from
recessions, primarily from reduced wearer levels at account sites that flow through
into the P&L over time.
Spin-offs have their own challenge
Spin-offs can allow for a more-focused management approach and unlock value when
investors value the sum of the parts more than they would the previously combined
firm. However, spin-offs also introduce a new layer of public company costs, which
obstructs comparability. Also, smaller spin-offs may struggle to gain Wall Street’s
attention and investors may prefer not to hold the spinco if they do not know the
business well, creating selling pressure. VSTS shares have traded poorly since the
separation from Aramark, declining 27% from initial “when issued” pricing (vs a 2%
rise in the S&P 500).
Spin-offs also often lack a management track record for fundamental performance and
capital allocation. While we see fundamental proof points that Vestis’ new
management has made smart operational changes, we do not have a similar
barometer for how they will approach capital allocation post-spin.
Company Description
Headquartered in Atlanta, Vestis is the second largest Uniform Services company
in North America. As of 2022, we estimate the company had a ~5% share of the
U.S. uniform rental/direct sale market. The company was previously a segment of
Aramark called Aramark Uniform Services (AUS) prior to its spin-off from its
long-time parent in September 2023. The company delivers garments and
workplace supplies to some 300,000 client sites along ~3,400 pick-up and delivery
routes across the U.S. and Canada. The firm has approximately 20,0000 employees
and ~350 facilities, including two manufacturing plants in Mexico that produce
roughly half of the uniforms and linens sold by the company. Vestis generated 91%
of F2022 revenues in the United States, and the remaining 9% in Canada. In
January 2018, Vestis was combined with competitor AmeriPride (acquired by
Aramark for $1 billion in cash). Vestis follows a September-end fiscal year.
6
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Industry Overview
Uniform Services Industry History
The service of renting work clothes dates back to the 1930s. In renting work clothes,
Uniform Services providers assume responsibility for purchasing (or manufacturing),
laundering, mending, and delivering uniforms. The industry’s trade association (now
known as the Textile Rental Services Association of America, or TRSA) traces its roots
to 1912. TRSA initially served the linen supply industry before expanding to cover
industrial applications and broader textile rentals over time.
Each of the publicly traded uniform rental companies has an extensive heritage. Cintas
traces its history to 1929, when one-time circus performers Doc and Amelia Farmer
began to collect, launder, and re-sell used textile rags. Cintas entered uniform rentals
around 1959 and used variations of the name “Acme” for most of its corporate life until
1973, when the Cintas brand was introduced. UniFirst was founded in 1936, as the
National Overall Dry Cleaning Company, to clean worker coveralls. One year later, the
firm began to rent uniforms. National Overall later became the Interstate Uniform
Service Company, which went public in 1983. A year later, the firm changed its name to
UniFirst. Vestis traces its history back to the founding of the Cleveland Overall
Company, which began by manufacturing industrial clothing in 1914. Over time, the
firm — which changed its name to Work Wear — vertically integrated garment
manufacturing and rental. Aramark entered the Uniform Services industry by
acquiring Work Wear’s rental business in 1977. The recent spin-off of Vestis ends
over 45 years of operating in Uniform Services by Aramark.
Uniform rental grew up as a hybrid of services and some manufacturing. Many uniform
rental companies also sell uniforms directly to clients not currently interested in a rental
program. The top players are vertically integrated to manufacture some uniforms to be
more responsive to customers’ needs. For example, Vestis operates two manufacturing
facilities in Mexico “that produce approximately 50% of our uniforms and linens
products.” Similarly, in F2022 (Aug. 2022 year-end) UniFirst manufactured ~61% of
garments placed into service from its plants in Mexico and Nicaragua.
The uniform rental market greatly expanded during the 1960s with the popularization of
synthetic fabrics, which are able to be laundered and “finished” more quickly (i.e., no
need for pressing or dry cleaning). In the 1970s, the uniform industry shifted its
attention to addressing corporate identity. Uniforms began to be viewed as corporate
image apparel, bringing greater awareness to a company’s brand and a consistent
corporate image of employees. The next big leap forward arrived with the technology
adoption of the 1990s. Uniform rental is the culmination of many detailed steps that
were once done manually. During the 1990s, Cintas led the way to technology adoption
in the areas of automatic washing machines, bar coded sorting, and computer-based
design of uniforms. These technology advancements eliminated some jobs and
enhanced the sophistication of others.
In recent years, a key theme for the industry has been tech enablement. Large
technology implementations have been key to driving operational efficiencies,
improved inventory management, and strong incremental margins by our
observation. There are two key enterprise software categories we watch closely in the
Uniform Services sector: 1) Enterprise Resource Planning (ERP) systems, and 2) work
7
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
order management systems — also called Customer Relationship Management (CRM)
systems by some firms. Cintas was the first of the major players to upgrade its Uniform
Services enterprise software; the firm’s core Uniform Rental and Facilities Services
segment completed the impressive implementation of SAP as both an ERP and work
order system in early 2020. Cintas’ operating margins are now in the 20+% range, in no
small part due to the firm’s tech enhancements. Vestis has used an Oracle ERP system
since 2016 and completed the implementation of its work order/CRM system, called
ABS, in fall 2022. UniFirst is also implementing ABS, with its rollout across the U.S.
scheduled for completion at the end of its fiscal 2023 (Aug. 2023). UniFirst also plans to
implement an Oracle Cloud ERP system in the years ahead. Vestis and UniFirst hope to
similarly benefit from technology systems improvements as Cintas has. That said, we do
sense that Cintas’ scaled SAP implementation has unique advantages.
The Uniform Services Business Model
Uniform Services companies deliver fresh uniforms, pick up dirty uniforms and launder
them for delivery the following week along localized delivery routes. A typical
uniform rental program provides highly predictable revenues on multi-year
contracts. By our observation, providers’ route service/sales networks provide frequent
customer touch points, which facilitates high client retention as well as ample crossselling opportunities. Weekly, route-based uniform delivery results in a scalable
business model with less-volatile revenues and attractive incremental margins from
volume growth and density. We show how a conventional garment rental program works
in Figure 1 below.
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n
clu
p
faty
o
eriw
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O
Figure 1: Overview of a typical uniform rental program
Source: Vestis company website
Reused with permission
On unit pricing, UniFirst discloses on its website that “the price for a uniform service
rental program can range from $4-$15 a week per wearer.” However, our industry
conversations suggest a more-typical price might be in the tighter range of ~$6.50-$10
per week at the wearer level, depending on exact needs of the account and if garments
are branded. Account-level fees that are charged for maintaining a program add to the
overall cost (see Table 1).
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etalp
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ifo
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U
8
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Table 1: Uniform rental pricing estimates across the industry
Average Uniform Rental Costs Breakdown
Price per change
per worker
Price per worker
(on a weekly basis)
Additional service fees
(~8 - 15% at account level)
$1.30 - $2.00
$6.50 - $10.00
$0.75 - $1.15
Average total costs per worker
(on a weekly basis)
$7.25 - $11.15
Source: J.P. Morgan estimates.
Who Rents Uniforms and Why
Uniform rentals started in industrial environments and still have a strong presence in
such settings for safety purposes. In the past, declines in manufacturing employment
were a headwind for the industry — manufacturing represents the single largest
vertical at Vestis (38% of revenues) and peer UniFirst (17%). In prior decades, U.S.
manufacturing jobs were largely displaced by offshoring or automation. From early
1980 through Feb. 2010, some 7.8mm domestic manufacturing jobs were lost. Since that
trough 13 years ago, the U.S. has added a net 1.6mm jobs (see Figure 2), although the
pace of the increase has been slow compared to the broader labor market.
)
3
-2
0
8
9
es(J1
y
lo
p
m
E
fctrig
u
an
M
.S
U
Figure 2: U.S. Manufacturing Employees (Jan. 1980 - Sept. 2023)
in millions; seasonally adjusted
20.0mm
18.0mm
16.0mm
14.0mm
12.0mm
10.0mm
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
Source: U.S. Bureau of Labor Statistics.
Some end markets utilize uniform rental programs to promote corporate image, ensure
brand consistency, and make employees easily recognizable to customers. Uniforms
have a meaningful presence in retail (e.g., Costco, Target, and Walmart) and food
services (e.g., McDonald’s, Raising Canes, and Starbucks). Other industries require
highly specialized apparel to meet their unique needs. UniFirst, in particular, has
historically had success in far afield areas such as the oil patch (selling flame-resistant
garments), nuclear power plants (offering respirators and coveralls), and biotech/
semiconductor cleanrooms.
Two notable industries where firms/workers historically purchased their own uniforms
were hotels and healthcare facilities, for different reasons. Guest-facing hotel staff often
wear garments that require regular dry cleaning — Uniform Services providers do not
dry clean garments, as the solvents used in the process can contaminate soil or water and
can result potential environmental remediation liabilities. In healthcare, doctors and
9
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
nurses have long preferred to own their work scrubs and lab coats. To penetrate these
customer bases, uniform rental companies continue to be inventive (e.g., “retail
inspired” apparel for hotel/casino guest services and scrub dispensing systems for
hospitals). More recently, Uniform Service providers have also found that the healthcare
end market is progressively opening up to outsourcing, with Cintas the leader in this
space by our understanding. The COVID-19 pandemic has proved to be a beneficial
driver of garment outsourcing, as sanitation standards have become increasingly
stringent and worker safety concerns are more paramount.
In our view, Vestis’ revenue mix largely reflects the evolution of the industry, given a
concentration in Manufacturing (36% of calendar 2022 revenues), Hospitality (18% of
revenues), and Retail (15%). We show figures for Vestis in Figure 3 and also present
revenue mix figures for UniFirst (which defines its verticals more narrowly) and Cintas
(which provides limited disclosure).
cal
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%
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Figure 3: Vestis revenue mix % by vertical
% of calendar year 2022 revenues
Government & other,
8%
Healthcare, 7%
Manufacturing,
36%
Food processing, 8%
Automotive, 8%
Retail, 15%
Hospitality, 18%
Source: Company reports.
Figure 4: UniFirst revenue mix % by vertical
% of revenues as of Feb. 2023
Other, 9%
Healthcare, 3%
Manufacturing,
17%
Agriculture and Energy,
4%
Building Related,
5%
Auto Related, 16%
Transportation &
Utilities, 6%
Eating & Drinking
Places, 7%
Food Related, 9%
Source: Company reports.
10
Wholesale Trade, 9%
Business
Services, 14%
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 5: Cintas revenue mix % by vertical
% of revenues
30% Goodsproducing sectors
(manufacturing,
construction, etc)
70% Servicesproviding sectors
(healthcare, hospitality,
foodservice, etc.)
Source: Company reports.
A Local Business with Nationwide Scale
In the map below, we show the collective customer-facing facilities for the three public
uniform providers across the United States and Canada. Collectively, the three firms
have a clear presence in the major population corridors across the U.S. We note that
Vestis presently serves >95% of the largest metro areas in the U.S., with UniFirst citing
a similar figure.
Figure 6: U.S. and Canadian footprints for Vestis, Cintas, and UniFirst
Source: Company websites (accessed July 2023) and J.P. Morgan
Attractive Cross-sale Potential
Given the attractive economics and strong client relationships fostered by their routebased business model, Uniform Services providers have expanded the range of products
and services on offer over the years. In general, these ancillary and adjacent offerings
promote corporate image, employee safety, and on-site hygiene for a firm’s customers.
As of F2022 (Sept. 2022), Vestis derived a majority (56%) of its revenues from outside
of its hallmark uniform offerings (see Figure 7).
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11
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 7: Vestis revenue mix % by product offering
% of F2022 (Sept. 2022) revenues
First-Aid and Safety
Products, 2%
Managed Restroom
Supply Services, 6%
Linen Services, 11%
Uniforms and
Workwear, 44%
Floor Care (Mats),
15%
Towels and Aprons,
22%
Source: Company reports.
Note: Uniforms and Workwear includes Direct Sale revenues
We make an important distinction between “ancillary” products and services and
outright adjacencies when discussing Uniform Services. To us, ancillary products and
services are those delivered on the same truck as uniform rentals. These products
include textiles such as aprons, entrance mats, linens, and shop towels, as well as
cleaning and hygiene supplies (e.g., disinfectant, drain line maintainer, hand sanitizer,
etc.) We define adjacencies to include services or products offered along a separate set
of routes. For example, Cintas and UniFirst have discrete first aid supply and safety
services operations, with their own route infrastructure, which serve clients’ on-site
health and emergency needs. Additionally, Cintas owns a scaled Fire Protection Services
unit. This division services and inspects sprinklers and fire suppression systems,
alarms, emergency signage, and more. Vestis presently offers all of its products, from
uniforms to first aid products, via a singular route network.
Importantly, Cintas, UniFirst, and Vestis all operate direct uniform sale businesses.
These operations help build and maintain relationships with prospects/clients that may
not be ready for a rental program, but are interested in standardized garments, or
ancillary workplace supplies (see Figure 8 below). Direct sales generate a lower margin
and are frequently a non-recurring, pro-cyclical revenue stream. Two of the large
uniform manufacturers are Red Kap (private) and Dickies, which is owned by V.F.
Corporation. Also, Walmart and Amazon are large retailers of workwear.
f
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Figure 8: Direct sale mix % by firm
% of full-year consolidated revenues in most recently completed fiscal year
9%
8%
8%
7%
6%
5%
4%
4%
3%
3%
2%
1%
0%
Cintas
Source: Company reports and J.P. Morgan estimates.
12
UniFirst
Vestis
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Measuring Fundamental Performance
Key Revenue Drivers
Uniform Services companies primarily derive their revenue from the rental of uniforms
and cross-sale of ancillary services (e.g., entrance mats, mops, bathroom supplies) along
a route-based system. Their route drivers and/or a network of dedicated salespeople sell
their services to customers. Organic revenue growth can be disaggregated into five
unique drivers:
1. New Accounts, which includes customers won from competitors or companies with
no previous rental program (“no programmers”). We view success with noprogrammers to be a critical driver of profitable organic revenue growth, as
these sales expand the vended market rather than simply constituting share shift.
2. Cross-Sale, which is the sale of an additional service to an existing customer along
the same route system. Cross-Sale has become an increasingly important piece of
Uniform Services providers’ revenue growth over time.
3. Customer attrition, which we measure as the loss of existing customers (weighted
by revenues) as a % of prior period revenues. Attrition can be driven by a number of
factors, including bankruptcy at the customer level or account loss to a competitor.
Top providers have gross revenue retention rates over 90%. We understand industry
leader Cintas maintains retention rates of ~95%. Vestis has increased retention to
>93% over the prior two years (F2021 and F2022), versus a 91.7% average from
F2016-2020.
4. Add-stops represent the change in uniformed headcount within a firm’s existing
client base. Add-stops are sensitive to labor market activity, and thus are the most
cyclical component of Uniform Services organic revenue performance. Add-stop
activity may weigh on growth in a recession or slowdown but can also be an
industry tailwind in expansionary periods.
5. Pricing is also a driver of Uniform Services revenue. Historically, the pricing
environment in Uniform Services has been healthy but not especially aggressive,
with local providers offering lower-cost options for customers. In recent years, the
pricing environment has been constructive for the largest providers. In 2022,
revenue growth for publicly traded Uniform Services accelerated due to higher
pricing amidst an inflationary environment. Industry revenue growth rates are
settling back to mid-single digits % after lapping high price increases in 2022.
Vestis’ Targets in the Context of KPIs
At its Sept. 2023 Analyst Day, Vestis management unveiled plans to grow organic
revenues by a +5-7% CAGR over the next five years (i.e., from F2023 through
F2028; see Figure 9). We chart the contributors to this growth below. The firm expects
+2-3% points of growth from new accounts (in particular, management is targeting eight
specific sub-verticals; see page 37 for more). Leadership further aims for another +2-3%
points of growth from a “retain and gain” strategy (i.e., cross-sale less attrition). Vestis
is targeting improved retention via a more seamless and tech-forward customer
experience, and cross-selling by training and incenting drivers (called “route service
representatives” at the company) to generate sales. Finally, Vestis leadership models
~1% point of organic revenue growth from pricing over the next five years (under the
assumption that input costs remain about flat; note that Vestis implemented a fuel price
surcharge for about six months in 2HF22).
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13
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 9: Vestis medium-term revenue growth framework (F2023-F2028)
Five-year % organic CAGR beginning at the end of F2023 (Sept. 2023)
Vestis Organic Revenue Growth Framework
+5-7%
~1%
+2-3%
+2-3%
New accounts
"Retain and gain"
Pricing
Total VSTS organic revenue
growth target
Source: Company reports.
Organic Revenue Growth: A Game of Catch-Up
As seen in Table 2 below, the largest Uniform Services providers have demonstrated an
organic, constant currency (o/cc) revenue CAGR of 4.1% from 2014 through 2022, with
Cintas growing the fastest at +6.3% annually. Cintas possesses premium positioning in
the market, strong sales force execution, and compelling offerings in both fast-growing
verticals (e.g., healthcare) and adjacencies (e.g., first aid). We believe these factors
should help Cintas prospectively sustain industry-leading revenue growth rates. UniFirst
has also recorded faster growth than Vestis from 2014-2022, albeit less-balanced with
profitability vis-à-vis Cintas.
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Since 2014, Vestis has grown o/cc revenue at a peer low 2% CAGR. We are
encouraged by the changes that the current Vestis management team has made and the
plans they enunciated to drive enhanced, profitable growth. As a consequence, we
expect Vestis’ organic revenues to grow in-line with peer UniFirst in each of C2024E
and C2025E. However, we do acknowledge that growth cultures are formed over time,
not overnight, and that several of Vestis’ largest verticals are cyclical.
Table 2: Uniform Services organic, constant currency (o/cc) revenue growth y/y %; C2014-C2025E
Vestis (VSTS)
Cintas (CTAS)
G&K Services (GK; acquired 3/2017)
UniFirst (UNF)
Average Organic Revenue Growth
U.S. Real GDP
Organic Rev Growth/ U.S. Real GDP
C2014
C2015
C2016
C2017
C2018
C2019
C2020
C2021
C2022
C2023E
C2024E
C2025E
3.2%
6.3%
5.8%
5.6%
5.2%
2.3%
2.3x
4.1%
6.8%
5.1%
3.3%
4.8%
2.7%
1.8x
2.1%
6.2%
2.0%
0.5%
2.7%
1.8%
1.5x
0.3%
7.7%
n/a
5.0%
4.4%
2.5%
1.7x
2.4%
6.2%
n/a
5.2%
4.6%
3.0%
1.5x
2.7%
7.3%
n/a
4.4%
4.8%
2.5%
1.9x
-7.4%
-3.2%
n/a
-1.4%
-4.0%
-2.2%
1.8x
2.0%
7.2%
n/a
3.9%
4.4%
5.8%
0.8x
8.9%
12.4%
n/a
9.6%
10.3%
1.9%
5.4x
5.1%
9.3%
n/a
8.0%
7.5%
2.3%
3.2x
5.0%
7.2%
n/a
5.1%
5.8%
1.2%
4.8x
5.0%
7.2%
n/a
5.1%
5.8%
2014-2022 2014-2025E
CAGR
CAGR
2.0%
6.3%
n/a
4.0%
4.1%
2.2%
1.8x
2.7%
6.7%
n/a
4.5%
4.6%
2.1%
2.2x
Source: J.P. Morgan estimates, Company data, Bureau of Economic Analysis.
Operating Margins - Scale Begets Scale
The Uniform Services industry produces healthy operating margins, especially when
routes are locally optimized for density. Because these businesses have significant
fixed costs, each additional customer they can capture along a given route drives
high incremental margins and operating leverage over a larger revenue base.
Outside of winning new accounts or cross-selling additional products, density can also
be driven by optimization of a provider’s existing network to remove “empty miles”
between customer stops. The Uniform Services route-based business model also
benefits from economies of scale driving purchasing efficiencies in input costs.
14
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
In Table 3 (below), we show the top three players have generated an average operating
margin in the ~13% range over time. Cintas’ margins pace the field, at 20.4% as of
C2022, illustrating the benefits for scale. Cintas’ revenue base is ~3x and ~4x larger
than those of Vestis and UniFirst, respectively. Cintas has also shown a clear and
consistent pattern of margin expansion over time. UniFirst’s operating margin has
averaged 11.3% from 2014-2022, but the firm has struggled to balance growth and
profitability at times. In our view, UniFirst was caught somewhat offsides by cost
inflation, and was perhaps too reactive approach in addressing cost increases. UniFirst
margins peaked at 14% in C2014, and we expect they will trough at 7.9% in C2023E
before recovering somewhat due to normalizing merchandise amortization (i.e., the cost
of amortizing inventory purchases, typically spread over ~18 months for uniforms).
Vestis averaged a 10.8% operating margin from C2014-C2022, a number that was
pressured in more recent years by the COVID-19 pandemic and investments by the new
management team to accelerate growth. Importantly, while Vestis has used an Oracle
ERP system for a number of years, the firm finalized its network-wide
implementation of a work order management system, called ABS, in fall 2022.
Vestis has begun to identify potential areas of benefit, including around better
merchandise management.
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Table 3: Uniform Services adjusted operating margins; C2014-C2025E
Operating Margin
Vestis (VSTS) (1)
Cintas (CTAS) (2)
UniFirst (UNF) (3)
Average (mean)
C2014
C2015
C2016
C2017
C2018
C2019
C2020
C2021
C2022
C2023E
C2024E
C2025E
2014-2025E
Average
12.2%
14.7%
14.0%
13.6%
12.3%
15.8%
13.9%
14.0%
14.1%
16.0%
11.9%
14.0%
12.7%
16.1%
11.0%
13.2%
10.9%
16.7%
10.8%
12.8%
10.4%
18.0%
12.0%
13.5%
7.1%
18.1%
9.4%
11.6%
8.0%
20.1%
10.2%
12.8%
10.0%
20.4%
8.3%
12.9%
9.8%
21.2%
7.9%
13.0%
10.2%
21.6%
8.3%
13.4%
10.9%
21.9%
8.6%
13.8%
10.7%
18.4%
10.5%
13.2%
Source: J.P. Morgan estimates, Company data.
Notes: (1) Vestis data are for Aramark’s Uniform Services segment through calendar year 2022. Our C2023-C2025E estimates reflect that an annualized ~$20-25mm of public company costs will be
incurred by Vestis as a standalone public company. (2) Cintas data add back integration costs the amortization of acquired intangible assets associated with the acquisition of G&K Services in 2017. (3)
UniFirst data are adjusted for discrete key initiative costs beginning in late C2021 as well as M&A integration costs and intangible asset amortization beginning in C2023E.
Measuring Density
There are many ways to measure the density of route systems that Uniform Services
providers operate. Revenues per route are one such metric, although each firm
determines its routes differently. Also, disruptive events such as M&A (e.g., Aramark
Uniform’s combination with AmeriPride) or the COVID-19 lockdowns make year-toyear comparisons difficult.
15
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 10: Vestis routes and revenue per average route; F2016-F2022
Routes (left) vs Revenue per route ($000s; right)
AmeriPride
Acquisition
5,000
4,000
$601k
$590k
$605k
COVID-19
Lockdowns
$662k
$655k
$692k
New Mgmt
$1,000k
Year 1
$771k $800k
3,000
$600k
2,000
1,000
3,900
2,600
2,700
F2016
F2017
F2018
Vestis Routes (left)
4,000
3,600
3,450
3,400
$400k
$200k
0
$0k
F2019
F2020
F2021
F2022
Revenue per Average Route ($000s)
Source: Company reports.
Note: Data are for Vestis as a division of Aramark. The Vestis/Aramark fiscal year ends around Sept. 30 each year.
Digging deeper, we also look to revenues on a per facility basis. This metric has similar
challenges as revenue per route — different ancillary/adjacent services have different
space needs and not all facilities are equally important (a scaled distribution center can
be much more impactful to performance than a local cross-docking station.) Still, we
find the relationship between revenue per facility and adjusted operating margin
effectively illustrates how Cintas is able to generate margins that are >2x its peers
through effectively leveraging its fixed asset base.
Figure 11: Uniform Services revenue per facility and adjusted operating margins; F2023E
Revenue per facility (left; in $mm); Adjusted operating margin (right)
$20mm
$18.6mm
25.0%
$16mm
$12mm
20.0%
20.8%
$8.1mm
$8mm
9.7%
$4mm
$8.6mm
15.0%
10.0%
8.2%
$0mm
5.0%
0.0%
Cintas
Revenues per Facility ($mm, left)
Vestis
UniFirst
Adjusted operating margin (right)
Source: Company reports and J.P. Morgan estimates.
Note: Revenues and margins are based on actual F2023 results for Cintas and our F2023 estimates otherwise. We use the number of
facilities disclose by each firm at the end of the prior year as our denominator. Fiscal 2023 end: May 2023 for Cintas, Aug. 2023 for
UniFirst, and Sept. 2023 for Vestis. Margins are adjusted to add back transformation costs, M&A integration expenses, and acquired
intangible amortization for all three firms.
A third metric that we consider is revenue per employee. While not a pure measure of
density, revenue per head does reflect the productivity of a firm’s people and assets. In
our view, Cintas has historically had premium revenue per average employee given its
growth culture, success with no-programmers, and innovation. Vestis and UniFirst have
similar, and lower levels of revenue per employee. Note that Vestis engaged in a
meaningful (~35%) sales force expansion in F2019 while still a segment of Aramark.
Under its new leadership team, Vestis is implementing a strategic plan to re-route its
network that explicitly restricts service distance and aims to enhance capacity
utilization. These efforts benefit Vestis’ revenue per employee over time.
16
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 12: Uniform Services revenue per average employee ($000s) (F2014-F2022)
$200k
$180k
Cintas, $189k
$160k
Vestis, $142k
$140k
$120k
UniFirst, $143k
$100k
F2014
F2015
F2016
F2017
Vestis
F2018
F2019
Cintas
F2020
F2021
F2022
UniFirst
Source: J.P. Morgan estimates, Company data.
Note: Fiscal years generally end in May for Cintas, August for UniFirst, and September for Vestis.
“Triangular” constraint between revenue, margins, and inventory investments
Although volumes are a key driver of organic revenues, the first year of a uniform rental
tends not to be profitable. Providers bear the up-front costs of issuing a new set of
uniforms, which are typically amortized over ~18 months. Therefore, in the midst of an
inventory expansion, firms face some constraints on driving both organic revenue
acceleration and margin expansion at the same time. In recent years, this dynamic has
been most evident in the results at UniFirst. Conversely, when volume growth slows,
providers can accumulate a stock of lightly-used uniforms. The redeployment of these
garments, either exiting a slowdown or through better inventory management, can be
quite profitable. Vestis notes that a 1% point improvement in its “used fill ratio” (i.e.,
the % of total garments ordered by customers that are filled from existing inventory)
equates to ~$1.4mm in savings (equaling ~5bps of margin).
Exiting the COVID-19 pandemic, we note that Cintas had lower quarterly volatility in y/
y % inventory growth (3% standard deviation) than UniFirst (15% standard deviation).
We believe this lower volatility is in-part due to Cintas’ impressive SAP implementation
in its Uniform Rental segment — completed in early 2020 just as the COVID-19
pandemic struck. We show comparable inventory growth and operating margin
performance for Cintas (left) and UniFirst (right) below. All else being equal, we
would expect less volatility in inventory growth to result in higher, more
predictable margins.
Figure 13: Cintas adjusted operating income margin vs. y/y% inventory
growth (quarterly); Feb. 2020 - Aug. 2023
25.0%
21.7% -
Figure 14: UniFirst adjusted operating income margin vs. y/y%
inventory growth (quarterly); Feb. 2020 - May 2023
15.0%
(12%)
7.8%
20.0%
3%
12.0%
15.0%
6%
9.0%
12%
10.0%
9%
6.0%
24%
5.0%
12%
3.0%
36%
0.0%
15%
0.0%
48%
Adjusted operating margin (left)
Inventory growth Y/Y% (right; inverted)
Source: Company reports and J.P. Morgan.
Note: Margins are adjusted to add back transformation costs, M&A integration expenses, and
acquired intangible amortization. Inventory growth is measured based on the change in balance
sheet inventories and rental merchandise in service.
JPM adjusted operating margin (left)
-
Inventory growth Y/Y% (right; inverted)
Source: Company reports and J.P. Morgan.
Notes: Margins are adjusted to add back transformation costs, M&A integration expenses, and
acquired intangible amortization. Inventory growth is measured based on the change in balance
sheet inventories and rental merchandise in service.
17
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Importantly, the real-world useful life of uniforms is much longer than the
accounting amortization period, such that accounts become far more profitable after
their uniforms have been amortized. This dynamic makes retention rate an important
input for profitability. From F2016-F2020 today’s Vestis (then Aramark Uniform
Services), reported an average gross revenue retention rate of 91.7%. During F2021 and
F2022, retention rate at Vestis exceeded 93%.
Figure 15: Vestis annual client retention rate (based on revenues); F2016-F2022
% of client revenues retained from the prior year (excludes pricing, cross-sell, and add-stop impacts)
94.0%
93.5%
93.5%
93.1%
93.0%
92.5%
92.0%
91.7%
91.5%
91.0%
90.5%
Average F2016-F2020
F2021
F2022
Source: Company reports.
Total Addressable Market
At this point in the Uniform Services industry lifecycle, we believe it is important to
consider the total addressable market (TAM) and market share dynamics when assessing
company-level fundamentals, valuation, and potential consolidation. We assess the
market opportunity for industry participants within the United States to be
significant, at $45 billion as of 2022, up from $42 billion in 2019 (pre-pandemic).
Consideration of substitutes is also important, because providers must often sell the
general utility of uniform rental to prospective clients; any given company can also opt
to purchase uniforms or not even have uniforms at all. We believe the conversion of new
customers who do not already rent uniforms (called “no-programmers”) will remain a
significant growth driver for the industry prospectively. Additionally, adjacent services
delivered on the same truck as a uniform rental provide opportunities for cross-selling,
another growth driver we consider to be a large part of the $45bln U.S. TAM.
Collectively, the four largest uniform services companies – Cintas, Vestis, UniFirst, and
Alsco (Private) – account for 26% of the addressable market.
We separate the addressable market for uniform rental and additional services into three
buckets (see Figure 16 below). First, we estimate a $17 billion existing/vended
market for uniform rental/linen services within the U.S. as of 2022. This estimate is
based on Census Bureau establishment data for companies who main business is
supplying laundered items on a rental or contract basis. Second, we estimate the U.S.
direct sale market for blue-collar occupational workwear to be $15 billion as of
2022. These estimates are informed by TAM calculations provided by workwear and
Western wear retailer Boot Barn (BOOT/ covered by Matthew Boss). Direct sale
workwear is principally purchased by employees directly, or by employers in businessto-business transactions. This market is primarily controlled by garment manufacturers
and retailers, although uniform rental companies have their own manufacturing
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18
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
footprints to facilitate direct sales. Finally, we estimate the U.S. healthcare apparel
direct sale market to be $13 billion as of 2022, based on figures from the May 2021
prospectus of apparel company FIGS, Inc. We view the healthcare end-market as
notably underpenetrated for uniform rental programs: ~85% of medical professionals
buy their own healthcare apparel (e.g., scrubs and lab coats), per FIGS, and “due to
frequent wear, healthcare apparel continuously needs to be replenished.” Coming out of
the pandemic, we do see meaningful white space for Uniform Services providers within
healthcare given an enhanced focus on hygiene and ongoing product innovation (e.g.,
automated scrub dispensing systems).
Figure 16: A $45bln U.S. addressable market for uniform rental/direct sale providers (2022)
Healthcare Apparel
(direct sale), $13B
Uniform Rental/Linen
Services, $17B
Blue-Collar
Occupational Wear
(direct sale), $15B
$45 Billion TAM
Source: U.S. Census Bureau, Bureau of Labor Statistics, FIGS, Boot Barn, and J.P. Morgan estimates.
Notes: Our Uniform Rental/Linen Services estimate is based on 2017 figures from the U.S. Census Bureau’s Economic Census for “Linen
and Uniform Supply” establishments (NAICS Code 81233). These data measure firms principally engaged in Uniform Rental/Linen
Services. Census figures have been updated to 2022 using average growth rates for public companies in the industry (shown previously in
Table 2). Our Healthcare Apparel estimate is based on data in the May 2021 IPO prospectus for FIGS (source). The Blue-Collar
Occupational Wear estimate is based on data from retailer Boot Barn (source).
Our addressable market estimate includes ancillary services (which, recall, are generally
delivered on the same truck as uniform rentals). Such ancillary offerings are not
explicitly sized, although we believe Census data (measured at the establishment level)
captures revenues for these services (e.g., mats and mops rentals). By contrast, we
exclude adjacent services delivered via separate route systems from our TAM estimate..
Such adjacencies include first aid products (where Cintas, UniFirst, and Vestis all
compete) and fire protection services (offered only by Cintas within our coverage).
Finally, we do not include any size estimate for disposable healthcare products, although
in our view a number of these could potentially be replaced with textiles in a sterile and
climate-friendly manner.
Looking at a product level, Vestis management arrives at a slightly larger TAM of $48
billion, split across each Uniforms ($21 billion or ~44%) and other Workplace Supplies
($27 billion or ~56%). There are some differences in scope between our estimates
(which are for 2022 and exclude Canada) and the Vestis team’s (which are for 2023 and
include Canada; see Figure 17).
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Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 17: Vestis estimates a $48bln U.S./Canada total addressable market (2023)
Uniforms, $21B,
~44% of total
Workplace
Supplies, $27B,
~56% of total
$48 Billion TAM
Source: Company reports.
Tying our TAM to uniform services economics
As noted earlier, Uniform Services providers often must sell the utility of rental
programs generally in prospective customer conversations (see examples here and here
from the websites of Alsco and UniFirst, respectively). According to market share
leader Cintas, in recent years ~60% of the company’s new client wins have come from
new-to-rental customers, also called “no-programmers” in industry parlance. We assess
Cintas’ consistent, best-in-class organic revenue growth and margin expansion, as
well as its leading market share, to be corollaries of its long-standing success with
no-programmers. Increasing success with new-to-uniform prospects will be key for
Vestis in driving towards more “Cintas-like” fundamentals, we believe.
Market shares suggest ample room for growth and consolidation
The market shares shown in Figure 18 demonstrate ample growth runway for the public
Uniform Services providers, by our assessment. Cintas’ 15% market share as of 2022
suggests to us that the company has not yet reached such scale/maturity that its size
weighs on growth. Supporting this point, Cintas grew Uniform Rental revenues by
+10.8% y/y organic, constant currency (o/cc) revenue growth in the F2023 (May 2023end fiscal year). Importantly, we estimate that 74% of the potential market for Uniform
Services in the U.S. is either presently either served by smaller/regional uniform rental
providers or not served at all. This large potential market opportunity provides
fundamental support for strategic investments at Vestis, as well as UniFirst, intended to
spur accelerated growth — including the implementation of ABS at both firms. An open
question for both firms remains whether or not they can close the gap on o/cc revenue
growth relative to Cintas.
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Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 18: U.S. Uniform Services market shares within uniform rental/direct sale providers (2022)
% shares based on our J.P. Morgan estimate of the US addressable market ($45bln as of 2022)
Cintas, 15%
Vestis, 5%
UniFirst, 4%
Alsco, 2%
Other uniform
rental & direct
sale providers,
74%
$45 Billion TAM
Source: Company reports, U.S. Census Bureau, Bureau of Labor Statistics, FIGS, Boot Barn, and J.P. Morgan estimates.
Note: Based on our JPM estimate of the U.S. addressable market provided in Figure 16. Figures for each public company represent the
four fiscal quarters that principally fell within calendar year 2022. Alsco’s market share represents our estimate based on industry
knowledge.
Finally, we believe the limited degree of market concentration implied by our
analysis could leave scaled M&A on the table. We note there is a “long tail” of firms
that compete adeptly with the public Uniform Services providers at the local and
regional levels, and/or in certain key verticals. We show a list of notable, privately-held
U.S. uniform rental and linen services firms in Table 4 below.
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Table 4: Notable U.S. privately-held uniform rental/linen services companies
Company
Alsco Inc. (largest private U.S. provider)
American Textile Maintenance
Agnelica Corporation
Healthcare Linen Services Group
Hospital Central Services Cooperative
ImageFIRST
Mission Linen Supply
Morgan Services, Inc.
Prudential Overall Supply
PureStar
Unitex Textile Rental Services
Location
Salt Lake City, UT
Los Angeles, CA
Oakbrook Terrace, IL
St.Charles, IL
Allentown, PA
King of Prussia, PA
Santa Barbara, CA
Chicago, IL
Irvine, CA
Las Vegas, NV
Elmsford, NY
Source: J.P. Morgan, Company Websites
Company Overview
Headquartered in Atlanta, Vestis is the second largest Uniform Services company in
North America. As of 2022, we estimate the company had a ~5% share of the U.S.
uniform rental/direct sale market. The company was previously a segment of Aramark
(ARMK; Overweight), called Aramark Uniform Services (AUS), prior a spin-off from
its long-time parent in September 2023. Vestis traces its history back to 1914 and today
delivers garments and workplace supplies to some 300,000 client sites along ~3,400
pick-up and delivery routes across the U.S. and Canada. The firm has approximately
20,0000 employees and ~350 facilities, including two manufacturing plants in Mexico
that produce ~50% of uniforms and linens sold by the company. Vestis earned 91% of
F2022 revenues in the U.S., and the remaining 9% in Canada. In October 2017, parent
company Aramark announced the acquisition of AmeriPride, for $1 billion in cash;
21
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North America Equity Research
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JPMORGAN
AmeriPride was folded into AUS (now Vestis) upon deal close in January 2018. Vestis
follows a September-end fiscal year.
Vestis’ History
Vestis traces its history back to the founding of the Cleveland Overall Company, which
began by manufacturing industrial clothing in 1914. In the 1967 the firm — by then
called Work Wear — entered uniform rental via M&A. Aramark entered uniform
services by acquiring Work Wear’s rental business in 1977. The recent spin-off of Vestis
ends Aramark’s 45-plus years’ direct involvement in uniform services.
Here is a brief summary of key moments in Vestis’ history:
22
•
1914 — Samuel Rosenthal founds the Cleveland Overall Company, Vestis’
predecessor company, to manufacture uniforms for sale to launderers. Cleveland is
subsequently renamed “Work Wear” and vertically integrates garment
manufacturing and laundry rental through acquisitions.
•
1967 — Work Wear merges with Red Star Laundry, expanding its laundering and
uniform rental operations.
•
1977 — ARA Services (today’s Aramark) enters the Uniform Services industry by
acquiring Work Wear’s rental operation after the Department of Justice orders a split
of the latter’s manufacturing and rental businesses. Work Wear is rebranded
ARATEX.
•
1987 — ARA acquires Servisco, a New Jersey-based manufacturer and renter of
work uniforms, for ~$65mm.
•
1992 — ARA acquires Massachusetts-based WearGuard, one of the largest direct
marketers of work clothes in the U.S.
•
•
1994 — ARA Services changes its name to Aramark.
•
Sept. 1996 — Aramark acquires Crest Uniform, a leading provider of uniform
apparel to restaurant, hotel, and healthcare industries.
•
Early 2009 — Aramark repositions its WearGuard direct marketing business, taking
$34mm in charges and exiting a portion of the business.
•
•
Sept. 2011 — Aramark sells Galls to private equity for $75mm in cash.
•
Oct. 2017 — Aramark announces the acquisition of Uniform Services company
AmeriPride for $1bln in cash ($850mm after anticipated tax benefits). AmeriPride
generated ~$600mm in annual revenues at the time the deal is announced.
•
•
Jan. 2018 — Aramark completes the acquisition of AmeriPride.
•
Oct. 2021 — Aramark Uniform Services (AUS) names Kim Scott as President &
CEO.
1995 — Aramark acquires both Gall’s Inc. and Todd Uniform Inc. At the time,
Gall’s is the largest mail-order supplier of public safety apparel (e.g., for law
enforcement) and tactical gear in the U.S. while St. Louis-based Todd is one of
America’s top Uniform Services providers.
Dec. 2013 — Aramark goes public for the third time via IPO, under the ticker
ARMK.
Oct. 2019 — Aramark names John Zillmer as CEO. Zillmer had previously worked
at Aramark for 18 years through 2004, after which he led a turnaround of Allied
Waste and executed a successful sale of the company in 2008.
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
•
May 10, 2022 — Aramark announces plans to spin-off Aramark Uniform Services
into independent publicly traded company.
•
•
•
Sept. 5, 2023 — Aramark Uniform Services is rebranded to Vestis.
Sept. 30, 2023— Vestis is spun out to Aramark stockholders.
Oct. 2, 2023 — Vestis begins regular-way trading on the NYSE under the ticker
symbol “VSTS”.
What Does Vestis Provide?
Vestis’ core business is renting uniforms. From there, the firm also cross-sells a range of
ancillary products (e.g., aprons, entrance mats, linens, and shop towels) and services —
which management collectively calls Workplace Supplies. Uniforms, including direct
sale, accounted for 44% of F2022 revenues, while Workplace Supplies accounted for
56% of revenues. We show the most recent full-year (F2022) product mix for Vestis
below and provide color on each item. In our view, understanding the offerings Vestis
provides should give observers a better appreciation for the value the industry creates
for its clients.
Figure 19: Vestis revenue % mix by product offering
% of F2022 (Sept. 2022) revenues
Managed Restroom
Supply Services, 6%
First-Aid and Safety
Products, 2%
Linen Services, 11%
Uniforms and
Workwear, 44%
Floor Care (Mats),
15%
Towels and Aprons,
22%
Source: Company reports.
Note: Uniforms and Workwear includes Direct Sale revenues
•
Uniforms and Workwear (44% of F2022 revenues) — includes both Uniform
Rental (~36% of F2022 revenues) and Uniform Direct Sale (8% of F2022 revs).
•
Uniform Rental (~36% of F2022 revenues) — uniform rental uses localized
delivery routes to provide clients’ employees with fresh uniforms each week. In
any given week, a uniform rental company picks up one set of dirty uniforms for
laundering, while dropping off another freshly laundered set. A typical rental
program features 11 sets of garments — five on-site, five being laundered, and
one being worn (see Figure 1). Uniform rental programs provide highly
predictable revenues on multi-year contracts and drive weekly customer touch
points, which facilitates both high client retention as well as cross-selling
opportunities. Vestis offers branded garments from each of Dickies, Drifire
(flame resistant garments), and Landau (scrubs) by our checks.
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•
Uniform Direct Sale (8% of F2022 revenues) — All three of the largest
Uniform Services providers (Vestis, Cintas, and UniFirst) provide clients the
option to purchase uniforms and other workwear from them directly. These
operations help build and maintain relationships with prospects/clients that may
23
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North America Equity Research
16 October 2023
JPMORGAN
not be ready for a rental program but are interested in standardized garments or
have a program to buy other workplace supplies. Direct sales are often a nonrecurring, pro-cyclical revenue stream. Under its new leadership, Vestis has been
addressing “SKU proliferation” by decreasing slow-moving inventory to focus
on profitable growth. These actions represented a ~70bps headwind to revenue
growth YTD in 1QF23-3QF23 but contributed ~40bps in margin expansion over
that same time.
24
•
Towels and Aprons (22% of F2022 revenues) — Uniform Service providers
frequently offer aprons, shop towels, and microfiber cloths that help promote
sanitary workspace conditions in auto shops, clean rooms, food service facilities,
hospitals, and more. Towels and aprons can be rented in a similar fashion to
uniforms, transported on the same truck, and laundered at the same facility.
•
Floor Care (15% of F2022 revenues) — Vestis and peers offer floor mats in a
variety of sizes and types. In some settings, mats have logos and are used to project
corporate image. Mats can also serve functional purposes by managing dust/dirt,
preventing skids, and keeping surfaces from getting slippery after spills (a la flowthrough mats in kitchens). Vestis rents floor care products in a similar fashion to
uniforms. At Vestis’ Sept. 2023 Analyst Day, management identified Floor Care as a
“highly underpenetrated, margin accretive” offering for the firm. One risk we
highlight from Vestis’ SEC filings is that mats “are currently limited to a single
supplier.”
•
Linen Services (11% of F2022 revenues) — Linens are frequently rented to
healthcare facilities for bed sheets, blankets, and pillow slips, as well as to
restaurants for tablecloths and napkins. Linens compose a large part of the overall
textile rental landscape, with many dedicated linen providers. However, there are
key differences to uniform rental. First, linen rental is often quite literally a messier
business. Also, we observe that replenishing dirty linens does not foster the same
type of positive client interaction as bringing them clean uniforms, which can
hamper cross-sale by our appraisal. Aramark’s 2018 acquisition of AmeriPride
added greatly to Vestis’ linen exposure. In Canada, Vestis uses the brand name
Canadian Linen, initially inherited from AmeriPride.
•
Managed Restroom Supply (6% of F2022 revenues) — Vestis offers an array of
deodorizers, paper products, soaps, sanitizers, and more. Hygiene offerings are now
a core part of the offerings from scaled Uniform Services firms, with peer Cintas
even offering high-pressure restroom cleaning as a service (called “Cintas
Ultraclean”). Management described Managed Restroom Supply as “highly
underpenetrated [and] margin accretive” at Vestis’ Sept. 2023 Analyst Day.
•
First-Aid and Safety Products (2% of F2022 revenues) — Vestis is comparatively
small in First Aid and Safety, at 2% of F2022 revenues vs 11% at Cintas and 4% at
UniFirst. While Vestis leadership has highlighted first aid as an attractive and
margin-accretive offering, we note that both of Vestis’ peers operate separate
route networks for their own first aid businesses while Vestis does not. In our
opinion, First Aid/Safety has proven to be a powerful source of new business
wins for peer Cintas, which has expanded well-beyond the traditional first aid
cabinet and into high-value safety areas that also generate recurring revenues from
servicing (e.g., defibrillators, eyewash stations, and coolers plugged directly into
clients’ water lines).
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Who Are Vestis’ Customers?
Vestis’ client exposure can be broken-out by end-market as well as by customer size. As
stated above, we believe Vestis’ end-market revenue mix reflects the evolution of the
industry, which was initially oriented around standardization of garments in heavier
industry then moved on to consumer-facing businesses when creating a consistent brand
image became a corporate consideration. To that end, Vestis’ top verticals are
Manufacturing (36% of F2022 revenues), Hospitality (18% of revenues), and Retail
(15% of revenues).
Moving to customer account size, Vestis derived 84% of F2022 revenues from small-tomedium enterprise (SMEs) and 16% of revenues from National Accounts — defined by
the firm as clients generating >$25,000 in average weekly revenue and serviced by more
than two locations. While there is no accepted industry definition of a national account,
we think customers meet the definition if they have a scaled footprint and prefer singlesource providers capable of offering consistent service nationwide. National account
clients tend to be very sticky, with peer UniFirst highlighting a 99% customer retention
rate with such accounts, and Vestis management noting “when you are talking [about]
competing for national accounts, you're talking about share shift.” Said differently,
SMEs/local accounts can be seen as offering the most opportunity to organically
grow into industry white space for Vestis and peers. As Vestis management recently
stated regarding new business growth: “most of our strategy is tied around converting
those self-serve customers...onto our rental programs, which could be seen as industry
growth.”
Figure 20: Vestis revenue mix % by vertical
% of calendar year 2022 revenue
Government & other,
8%
Healthcare, 7%
Manufacturing,
36%
Food processing, 8%
Automotive, 8%
Retail, 15%
Hospitality, 18%
Source: Company reports
25
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 21: Vestis revenue mix % by client size
% of F2022 (Sept. 2022) revenues
National Accounts,
16%
Small-to-Medium
Enterprises (SMEs),
84%
Source: Company reports.
Note: National Accounts at Vestis represent those that generate >$25,000 in average weekly revenue across more than two market
centers.
Spin-Off Motivations
Scarce growth capital and attention
To set the stage, Aramark's Dec. 2013 IPO followed a leveraged buyout partly led by the
firm's long-time CEO, Joe Neubauer. The IPO marked Aramark's third foray into public
markets, after two prior stints as a listed company (1960-1984 and 2001-2007).
At the time of IPO number three, Aramark’s balance sheet was heavily leveraged (our
initiation at the time forecast ~4.7x net debt/CY2013E EBITDA) from its private equity
sponsors. At the time, Aramark’s five-year organic revenue growth meaningfully lagged
peers Compass Group and Sodexo, and the firm’s margins were ~160bps below industry
leader Compass Group.
Following the IPO, Aramark leadership at the time was focused on de-leveraging the
balance sheet and closing the performance gap versus competitors, most notably on
margins. To that end, in November 2024 management cited a portfolio repositioning that
would deliver “high, medium, or lower growth” across the firm's various verticals and
geographies, “with the expectation that our lower growth sectors will deliver highermargin improvement.” Rather than reinvesting for sustainable, premium growth in
Uniform Services, Aramark’s leveraged balance sheet motivated prior
management to run the Uniform business for cash flow at times, by our assessment.
This underinvestment contributed to below-peer organic, constant currency (o/cc)
revenue performance (see Figure 22 below).
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Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 22: Vestis' o/cc revenue growth historically lagged peers; C2014-C2022
y/y % change in organic, constant currency (o/cc) revenues
15%
9%
10%
5%
3%
4%
2%
0%
3%
2%
2%
(5%)
(7%)
(10%)
C2014
C2015
C2016
Vestis (VSTS)
C2017
Cintas (CTAS)
C2018
C2019
UniFirst (UNF)
C2020
C2021
C2022
G&K Services (GK)
Source: Company reports and J.P. Morgan.
Note: Vestis data are for Aramark’s Uniform Services segment.
Additionally, we have long felt that prior Aramark management teams treated the Food
and Uniform Services businesses as if their operating models were far more similar than
they actually are. Despite nearly half a century under the Aramark umbrella, the routebased nature of Uniform Services never evidenced meaningful synergies (if any) with
the firm’s Food & Support Services business, which is geared towards bespoke, on-site
client arrangements. We expect that separating the two businesses will allow for
Vestis to benefit from 1) a more-focused management team with experience
operating route-based businesses, and 2) continued foundational investments that
build a sustainable engine for enhanced organic revenue growth.
Aramark first announced its intentions to separate the Food & Support Services and
Uniform businesses on May 10, 2022. This announcement came about two-and-a-half
years after Aramark CEO John Zillmer first joined the firm amid an activist campaign
by Mantle Ridge. We believe it is possible the pandemic delayed the announcement of
the Vestis spin, but also sense Aramark took its time to seek out a CEO whose skills
were well-aligned to the Uniform Services industry and who was specifically drawn to
the challenge of founding a growth culture.
Vestis Management
Aramark announced Kim Scott as President and CEO of Aramark Uniform Services,
now rebranded as Vestis, on October 11, 2021. Kim has spent many years managing
route-based businesses. Kim started her career at U.S. Steel and General Electric,
gaining a background in procurement and manufacturing. Kim then spent over 10 years
with CHEP, rising to be the firm’s President for North America. CHEP is a leading
equipment pooling business that operates a recurring revenue model from leasing pallets
and containers into the global supply chain. From 2018-2019, Kim was President of
Rubicon Global (RBT US), a provider of software-based Waste Services firm that helps
divert waste from landfills. Most recently, Kim served as the President of Terminix’s
residential pest control business from Dec. 2019- Jan. 2021, before shortly serving as
the company’s COO, managing both the residential and commercial businesses. In her
time at Terminix, Kim focused heavily on increasing retention and was wellregarded by colleagues at the firm, we understand. Waste Services and pest control
are route-based businesses, with some meaningful similarities to Uniform Services.
27
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North America Equity Research
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JPMORGAN
In May 2022, Rick Dillon was announced as CFO of Aramark Uniform Services. He
brings significant experience working as a public company executive. Previously, Rick
was the CFO of Century Aluminum (CENX US) from Jun. 2014-Dec. 2016 and the
CFO of Enerpac Tool Group (EPAC US) from Dec. 2016-Apr. 2022. While we believe
Rick’s experience navigating the demands of public markets should prove helpful, we
find it important to call out that both Century Aluminum and Enerpac Tool Group saw
stock price declines during his tenure.
While we would consider both Kim (at two years) and Rick (at 1.5 years) to still be
fairly new to Uniform Services, we note that the Vestis board and management team are
not short on industry experience overall. Chairman Phillip Holloman spent 22 years at
Cintas, rising to be the firm's President & COO. Another board director, Tracy Jokinen,
was formerly CFO of G&K Services from 2014 through its 2017 acquisition by Cintas.
COO Chris Synek spent 16 years at Cintas in a variety of leadership roles before taking
on high-level roles at scaled Waste Services and logistics firms. We also understand that
Andy Panos, Vestis’ new SVP of Sales & Marketing, played a key role helping both
transform and lead G&K Service’s sales organization.
The table below provides a brief description of a number of key Vestis leaders and
their backgrounds.
28
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andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 23: Key board directors and management at Vestis
Name
Position
Kim Scott
President & CEO
J. Phillip Holloman
Chairman of the Board of
Directors
Rick Dillon
Executive Vice President &
CFO
Chris Synek
Chief Operating Officer
Andrew Panos
Senior Vice President of
Sales and Marketing
Brief Background
President & CEO of Vestis since October 2021. Kim started her career at U.S.
Steel. She also worked for General Electric's Plastics business across two
separate stints. From 2006-2017, she worked for equipment pooling firm CHEP,
rising to be the President of CHEP North America in 2013. From 2018-2019, Kim
served as president of Rubicon Global. Most recently, she worked for Terminix
from Dec. 2019 to Jan. 2021, serving first as President of Terminix Residential
and subsequently as COO during the final 10 months of her tenure. Kim also
presently serves on the board of publicly-traded industrial packaging firm Greif,
Inc. (NYSE: GEF). She is a graduate of Auburn University with a degree in
Environmental Science.
Phillip Holloman worked at Cintas for 22 years, including serving as the firm's
President & COO from 2008 until his retirement from day-to-day operations in
2018. He also currently serves as a director for PulteGroup (NYSE: PHM) as well
as the BlackRock Fixed Income Board. He is a member of the board of trustees
for the University of Cincinnati.
CFO of Vestis since May 2022. Rick has served as a public company CFO at
several firms since 2014. Rick was first EVP & CFO at aluminum producer
Century Aluminum (NASDAQ: CENX) from Jun. 2014 to Dec. 2016.
Subsequently, he served as EVP & CFO of Enerpac Tool Group from Dec. 2016
to Apr. 2022, after which he joined Vestis. Rick holds a bachelor's degree in
Accounting from Marquette University and an MBA from Northwestern
University's Kellogg School of Management. Rick also serves on the board of
automotive seating supplier Adient plc (NYSE: ADNT) and is a trustee at
Marquette University.
Chris joined Vestis in Sept. 2023, shortly before its separation from Aramark. He
spent the first 16 years of his career at Cintas, rising to be Group Vice President
for the firm's Southwest region. Chris subsequently worked at Allied Waste
Industries/Republic Services for eight years, rising to be EVP of Sales and
Marketing. Chris was also President, Transportation - North America for XPO
Logistics (NYSE: XPO) from 2017 to 2021 and then CEO of Neovia Logistics
from 2021 until earlier in 2023. He holds a Bachelor of Business Administration
from Texas Tech University.
SVP of Sales & Marketing since February 2023. Andy Panos brings 30 years of
sales experience to Vestis, including 12 at Uniform Services company G&K
Services. At G&K, he served in roles of increasing responsibility from 2005-2017,
including as the VP of Sales from 2011-2017, before G&K's sale to Cintas. We
understand that Andy played an important role in the successful turnaround of
G&K. He holds a Bachelor's degree in Marketing from the University of Texas at
Austin.
Source: J.P. Morgan.
Vestis’ Operating Footprint vs Peers
In conjunction with our J.P. Morgan data team, we aggregated information on advertised
customer-facing locations from the websites of each Vestis, Cintas, and UniFirst. We
show the results of this data gathering below. Note that: 1) Not all facilities are created
equal — a scaled distribution center that also does local deliveries can be more
impactful to performance than a local facility used for cross-docking. 2) We do not show
what ancillary/adjacent services are offered by each facility, although we acknowledge
different offerings may have varying space needs and exact offerings often vary from
location to location.
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North America Equity Research
16 October 2023
JPMORGAN
Vestis
Vestis has long maintained a large presence on the U.S. West Coast, most notably in
California based on our industry conversations. The 2018 acquisition of AmeriPride
added ~120 locations to the Vestis network , which presently has around 350 facilities.
AmeriPride also expanded the firm’s presence in the upper Midwest and Southwest
(including West Texas), as well as provided entry to Canada (Vestis still uses the
Canadian Linen branding inherited from AmeriPride in the country). At the time of its
acquisition, AmeriPride was pitched by the former Aramark management team as an
“opportunity to increase our route density and capacity utilization” from areas of
geographic overlap.
We note that Vestis presently serves >95% of the largest metro areas in the U.S.,
while management has been keen to stress that the firm has significant idle or
otherwise underutilized capacity in its markets — suggesting to us there should be
room for organic growth reinvestments that do not require the large capital outlays that
arise from expansion into greenfield markets.
Figure 24: Vestis customer-facing locations advertised online
Source: https://www.aramarkuniform.com/find-a-location (accessed July 2023) and https://www.canadianlinen.com/about-us/
locations(accessed July 2023)
Cintas
Unsurprisingly, Cintas’ map is the most densely-packed of the three leading Uniform
Services providers. At the end of the firm’s last fiscal year (F2023 ended in May 2023),
Cintas had 473 locations in 338 cities. These included 12 distribution centers, five
manufacturing facilities, as well as the firm’s rental processing plants, rental branches,
dedicated facilities for each the First Aid and Safety and Fire Protection Services
businesses, and direct sales offices. Geographic expansion into new territories “was not
one of the higher factors” considered by Cintas in its March 2017 acquisition of peer
G&K Services. However, the firm did positively call out adding plants, scale, and
density “in the major markets around the country like New York and LA and Chicago.”
30
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 25: Cintas customer-facing locations advertised online
Source: https://www.cintas.com/location-finder/ (accessed July 2023)
UniFirst
Massachusetts-based UniFirst is the industry’s third-largest firm (behind Cintas at #1
and Vestis at #2). The firm maintains 260 facilities across the U.S., Canada, and Europe
(where the firm provides specialty garments for nuclear plant operators). The firm
operates four production facilities, in Mexico and Nicaragua, and its main distribution
center is in Owensboro, KY. The firm’s Owensboro hub ships ~21mm garments
annually by our understanding. Unlike its two scaled peers, UniFirst did not participate
in the prior round of industry consolidation. However, earlier this year (Feb. 2023),
UniFirst acquired peer Clean Uniform for $300mm. Clean generates ~$90mm per year
in revenues and operates 11 facilities across five states, mostly in the Midwest. Local
market density in metro areas such as St. Louis, Tulsa, and Kansas City was cited as a
benefit of the deal.
31
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 26: UniFirst customer-facing locations advertised online
Source: https://unifirst.com/contact/locations/ (accessed July 2023)
Our View on Vestis’ Growth Transformation
Our J.P. Morgan team has researched the Uniform Services industry for 15 years, having
first initiated coverage of Cintas, G&K Services, and UniFirst in 2008. We began
covering Vestis’ long-time former parent, Aramark, in early 2014 following the firm’s
(third) IPO. We have now met with Vestis’ new management team on a number of
occasions over the last two years (since CEO Kim Scott was appointed to run Aramark
Uniform Services in Oct. 2021). We have grown increasingly confident that the
present leadership team possesses a convincing strategy to drive a growth
transformation at Vestis, which we measure by organic, constant currency (o/cc)
revenue growth and operating margin expansion (on a post stock-based
compensation basis).
We acknowledge up front that there are execution risks to management’s expressed
strategy to transform Vestis: growth cultures are not formed overnight, Uniform
Services has been a cyclical industry in the past, and the company’s balance sheet will
be meaningfully leveraged out of the gate. Those facts stated, we are encouraged by
Vestis management’s early business improvements, which to-date have focused on
enterprise technology upgrades and enhancing cross-sale and retention within the
existing customer base. We further gauge that the next steps outlined by the Vestis
leadership team — including an enhanced approach to targeting new accounts, better
asset utilization, and tighter inventory management — appear both credibly achievable
and data-informed.
Where Might We Be Wrong?
In the interest of being thorough, we lay out three factors that could weigh on Vestis’
fundamental execution and the VSTS stock: the degree of culture change,
macroeconomic cyclical risks, and the high degree of leverage on the Vestis balance
sheet.
32
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
#1 Growth cultures are not built overnight
Company culture is a truly intangible asset, but an important consideration in Uniform
Services. Vestis and its peers have large workforces, a large percentage of whom have
daily interactions with clients (for reference, Vestis has approximately 20,000
employees vs 44.5k at Cintas and 14k at UniFirst). Long-time industry observers will
know that market share leader Cintas management frequently attributes their firm’s
notable fundamental outperformance relative to peers over long periods of time to its
culture — the firm’s employee handbook, titled “The Spirit is the Difference”, relays the
value that long-time CEO Dick Farmer placed on service culture, competitive urgency,
and even professional appearance. While we do not believe Vestis must copy the
Cintas culture/mindset, we also recognize that pivoting an organization’s operating
priorities is rarely frictionless.
An important, and related, fact is that around 10,500 (i.e., over half) of Vestis’
employees are covered by collective bargaining agreements. By comparison, <1% of
UniFirst’s and 2% of Cintas’ workforces are unionized. Additionally, ~70% of Vestis’
frontline workers (i.e., plant workers and route drivers) are represented by unions.
Union relationships can be mutually beneficial when they help firms attract workers at
scale and curb employee turnover. However, unions can also impede organizational
change if they sense management’s strategy does not sufficiently benefit their
constituent members, including via work stoppages.
#2 Uniform Services is a cyclical industry
Uniform Services companies, including Vestis, are more cyclical than some of the other
Business Services companies we cover and are sensitive to changes in macroeconomic
factors, such as GDP growth and employment. While our JPM economists no longer
expect a U.S. recession is on the immediate horizon, we acknowledge the
macroeconomic outlook remains uncertain following a period of meaningful interest
rate increases.
Today’s Vestis is substantively different from the Aramark Uniform Services reporting
segment of 13 to 14 years ago — at the time called Aramark Uniform and Career
Apparel (AUCA). At the time, Aramark Uniform had a larger presence in direct sales
via two businesses, WearGuard-Crest and Galls (direct marketing of public safety
apparel and tactical gear). Several years of soft demand led Aramark Uniform to
“reposition” its WearGuard business in early 2009, shuttering some operations and
taking $34.2mm in charges. The segment later sold its Galls subsidiary to private equity
in Sept. 2011. In the teeth of the Great Recession (i.e., F2009) revenues fell by -6% y/y
for Aramark’s Uniform Rental services and -24% y/y for its Direct Marketing offering.
Overall business for Aramark Uniform declined organically by 9% in F2009 (on a Same
Week Basis) and another 6% in F2010, in the aftermath of the Global Financial Crisis
(see Figure 27). Aramark Uniform organic revenues declined -7% y/y in C2020, due to
the COVID-19 lockdowns/recession.
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Note that Uniform Services providers can realize revenue drags on a lagged basis
from recessions, primarily from reduced wearer levels at account sites that flow
through into the P&L over time.
33
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 27: Organic revenue performance at Aramark Uniform; F2006-F2012
Aramark fiscal years ended Sept.
4%
3%
2%
2%
2%
1%
2%
F2011
F2012
0%
-2%
-4%
-6%
-6%
-8%
-10%
F2006
F2007
F2008
-9%
F2009
F2010
Source: Capital IQ, Company reports, and J.P. Morgan estimates.
Note: Figures are adjusted for an extra (53rd) work-week in F2008.
#3 Vestis debuted as a leveraged public company
Vestis was spun off from Aramark as a highly encumbered company, with $1.5bln in
outstanding debt. We expect the firm’s net leverage to be in the range of ~3.6x LTM
EBITDA (post stock-based compensation) for the Sept. 2023 quarter. If we further
deduct the full pro-forma $20-25mm in annual public company costs, which Vestis has
yet to incur, that figure would be higher.
As presently constituted, Vestis' balance sheet consists of two secured term loans, each
priced at SOFR+225bps (implying a 7.6% pre-tax cost of debt at the time of this
writing), with a weighted average of 3.4 years to maturity. The first of these two term
loans, with $800mm in principal, matures in two years and to us appears to be moreakin to bridge financing. A second $700mm term loan matures in 2028.
On the positive side, Vestis possesses ~$330mm in liquidity ($30mm cash and a
$300mm revolving line of credit), and management’s initial capital allocation focus is
explicitly on deleveraging the balance sheet. Vestis views its optimal net leverage
ratio as 1.5-2.5x EBITDA (pre-SBC) and intends to get there by F2026.
On the negative side, we do think the firm’s present level of net leverage could
preclude Vestis from participating in scaled M&A. Also, we find Vestis’ intention to
declare a dividend as soon as November to be a headscratcher. A dividend yield
commensurate with industry peers would imply a ~$20mm cash outflow every year.
Why We Like the Vestis Growth Transformation
Vestis’ transformation, as envisaged by management, would accelerate o/cc revenue
growth from ~2% historically to +5-7% annually over the next five years (i.e., from
F2023 year-end through F2028). Similarly, Vestis plans to expand adjusted EBITDA
(pre-SBC) margins by ~400-600bps from F2023 levels to reach 18-20% of revenues by
F2028. We show key medium-term revenue and margins ambitions for Vestis below.
34
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 28: Vestis medium-term revenue growth framework (F2023-F2028)
Five-year % organic CAGR beginning at the end of F2023 (Sept. 2023)
Vestis Organic Revenue Growth Framework
+5-7%
~1%
+2-3%
+2-3%
New accounts
"Retain and gain"
Pricing
Total VSTS organic revenue
growth target
Source: Company reports.
Figure 29: Vestis medium-term EBITDA margin framework (F2023-F2028)
Five-year EBITDA (pre-SBC) margin bridge starting in F2023 (Sept. 2023)
Vestis Adj. EBITDA (pre-SBC) Bridge
+200-300bps
+100-200bps
+100bps
($20-25mm)
18-20%
~14%
F2023 Margin
Operating
leverage
Operating
efficiencies
Field/workforce
opimization
New public
company costs
F2028 Margin
target
Source: Company reports.
As previously noted, we are encouraged by Vestis management’s early business
improvements, which to-date have focused on enterprise technology upgrades and
improving cross-sale and retention within the existing customer base. We also further
appreciate that the next steps outlined by the Vestis leadership team (e.g., better
targeting of new accounts, improved asset utilization, and tighter inventory
management) appear both credibly achievable and data-informed.
Early traction in cross-sale and retention
A core element of Vestis’ accelerated organic revenue growth ambition comes via a
“retain and gain” strategy with existing clients. This strategy centers around both tech
enablement as well as customer-centric cultural changes.
Regarding tech enablement, we expect that Vestis’ rollout of work order management
system ABS, completed in fall 2022, should improve the ease of doing business with
clients. Specifically, ABS has allowed Vestis to supply handheld digital order fulfilment
systems to drivers across its network, allowing representatives to monitor customer data
as well as add new wearers and products to a client’s order either remotely or on-site. In
researching the Uniform Services industry, we have come to appreciate that tech
enablement can both meaningfully benefit cross-selling capability and provide an
uplift to margins by curbing attrition— recall that uniform rental programs are less
profitable at the outset and most profitable after ~18 months of activity, once the cost of
35
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
merchandise has been fully amortized.
Regarding cultural change, leadership has increasingly incentivized drivers to cross-sell
Vestis’ non-Uniform offerings in order to both generate incremental revenue streams and
enhance route density. To achieve these goals, management is empowering route service
representatives (i.e., drivers) to pitch and close sales. We acknowledge that Vestis is still
in the early days of large cultural change, although leadership appears encouraged by
workers’ receptivity to “the notion that you can replan your routes… you can cross-sell,
and you can win, and you can get a higher commission, and you can make more money
by doing those things.” The potential benefits of a more-commercial cultural at Vestis
are large: Per management, cross-selling just a single added product category, on
average, across the existing customer base (as of F2022) would add ~$900mm in
incremental revenues. That figure equates to a ~33% uplift on the firm’s F2022 revenue
base.
Thus far, early financial results from Vestis’ reworked “retain and gain” approach
have been encouraging: On the “retain” side, Vestis increased gross revenue retention
to >93% over the prior two years (F2021 and F2022), versus a 91.7% average from
F2016-2020 (see Figure 30). On the "gain” side, Vestis’ (non-Uniform) Workplace
Supplies revenues grew +19% y/y in F2022 and +9% y/y in the first nine months of
F2023 (see Figure 31). Conversely, Uniforms revenues at Vestis have been broadly flat
the last two years, partly reflecting what management deemed to be “a couple of, quite
frankly, non-regrettable losses around some accounts” (which we read as the firm
exiting unprofitable contracts).
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Figure 30: Vestis annual client retention rate (based on revenues); F2016-F2022
% of client revenues retained from the prior year (excludes pricing, cross-sell, and add-stop impacts)
94.0%
93.5%
93.5%
93.1%
93.0%
92.5%
92.0%
91.7%
91.5%
91.0%
90.5%
Average F2016-F2020
Source: Company reports.
36
F2021
F2022
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 31: Vestis’ Uniform and Workplace Supplies revenues; F2020-3QF23 (Sept. 2023)
in $mm
Uniforms
$1,800
$1,500
$1,258
$1,177
$1,200
$1,304
$1,169
$879
$900
Workplace Supplies
$1,518
$1,280
$1,125
$1,229
$880
$600
$300
$0
F2020
F2021
F2022
Fiscal Year
3QF2022 3QF2023
F2020
F2021
Nine months ended
Fiscal Year
F2022
3QF2022 3QF2023
Nine months ended
Source: Company reports.
A compelling go-to-market approach for new accounts
We have long maintained that market share leader Cintas’ consistent success winning
new customers has been a key driver of the firm’s best-in-class organic revenue growth
and margin expansion, as well as its leading market share. In particular, we admire
Cintas’ long-standing effectiveness with accounts that are new to outsourcing (called
“no-programmers”). Increasing success with new accounts, and especially noprogrammers, will be key for Vestis in driving towards more “Cintas-like”
fundamentals, we believe.
To improve new business wins, Vestis is specifically targeting potential clients in eight
“high-quality sub-verticals” where the firm sees significant room for growth. One of
these sub-verticals, auto dealers, was presented as a case study at the firm’s Analyst
Day; the other seven were not disclosed for competitive reasons. We were especially
impressed by the level of data analysis and effort management has invested in
constructing a thoughtful go-to-market approach for new accounts; Vestis measure
a given target sub-vertical’s attractiveness based on a combination of opportunity size,
customer scale, potential product penetration, and value delivery vs. costs (see Table 5).
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Table 5: Go-to-market metrics for Vestis’ targeted sub-verticals
1.
Attribute
Opportunity Size
Criteria
Size & growth of serviceable market
Threshold
>$300mm revenue opportunity
2.
Customer Scale
Potential revenue per stop
>$300 weekly average per stop
3.
Product Penetration Number of potential products
-Average penetration >3 products; and
-Potential penetration >5 products
4.
Value Delivery
-Cost <1% of spend; or
-Regulatory obligation exists
High perceived value relative to cost
Source: Company reports.
To give appropriate credit where it is due, Aramark’s 2019 leadership change did help
set the stage for faster new business growth at Vestis in our view. Aramark CEO John
Zillmer (appointed Oct. 2019) brought a strong culture of hospitality and focus on new
business growth to all divisions of Aramark, including Uniform Services/Vestis. We
note that Zillmer’s team quickly saw the potential benefits of implementing ABS across
the entire Vestis network after he joined the firm (AmeriPride already used the
platform). Also, we believe that Aramark’s management team was instrumental in
spurring net new business (i.e., gross new business wins less revenue lost from
37
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
attrition) across the firm, including at Vestis. By our assessment Aramark leadership
reinvigorated their firm’s focus on an “everybody sells” culture that emphasizes
responsiveness and execution. We note that Vestis appears to have benefitted from this
change in ethos as well (see Figure 32) and that Vestis leadership’s F2022 and F2023
compensation includes a net new sales performance metric.
tV
sid
u
b
w
n
early
Y
Figure 32: Yearly new business wins and net new business at Vestis
in $mm
$300
$200
$259
$232
$250
$158
$150
$100
$80
$63
$50
($50)
($3)
Average F2016-F2020
F2021
New Business Wins
F2022
Net New Business
Source: Company reports.
Note: New Business Wins are the annualized value of gross new business won in the period. Net New Business are New Business Wins
less revenue lost from attrition.
A detailed approach to improving efficiency
In her time at Vestis, we have found CEO Kim Scott’s detail-oriented focus on business
efficiency to be especially impressive. Although firms rarely cut their way to greatness,
we sense Kim and her team act with urgency to remove practices that impose costs,
generate inefficiencies, or tie up capital. We highlight a few such items below:
1. Optimization of Direct Sales (F2023) — Vestis has ceased ordering non-standard
stock keeping units (SKUs) that do not align with the firm’s standardized rental
products. While “SKU proliferation” produced small revenue benefits, these items
tied up capital in slow-moving inventory and added complexity to warehouse
operations. Addressing SKU proliferation negatively impacted y/y revenue growth
by ~70bps in 1QF-3QF23 but also delivered ~40bps of margin expansion YTD.
2. Organizational Streamlining (F2023) — Management has generated ~$28mm in
annualized gross cost savings in F2023 from realigning the firm’s organizational
structure across field teams, regions, and functions. Management has moved
employees with broader roles into “shared services” functions while consolidating
Vestis’ regional structure from five operating regions to four.
3. Optimizing customer flows (progressively through F2028) — Management aims
to constrain drivers’ route service radius and serve each customer stop from a single,
most-optimal location. To unlock underutilized capacity, Vestis aim to
“respect...historical production levels” and use multiple plant shifts to drive greater
utilization. In all Vestis management expects ~$30-50mm in gross savings and/or
redeployed capacity could be unlocked from such changes over five years, although
the team considers its customer flow optimization to be an “iterative program
approach” rather than a one-off project.
4. Optimizing merchandise inventory (multi-year) — Management aims to evolve
Vestis from using a highly localized stockroom system. In the future, management
envisions a more-standardized approach across market centers, consolidating
38
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
stockrooms, and deploying an enterprise-wide stockroom management system
(potentially via ABS). We note that peer Cintas already has such a system in-place
(via SAP) and have touted their system as reducing merchandise cost.
Industry Transformation Case Study: G&K Services
Our equity research team covered Uniform Services provider G&K Services for almost
a decade prior to its acquisition by Cintas. When Doug Milroy became CEO in May of
2009, G&K had a years-long track record of below-industry organic revenue growth
rates and operating margins. Doug instituted a strategic plan to transform (or, more
aptly turnaround) G&K by producing profitable growth through an increased
focus on customer retention, route efficiency/density, sales force productivity, and
overhead cost management. Doug's plan was successfully executed from 2009 through
2016, when G&K Services’ acquisition by Cintas was announced. The deal closed in
May of 2017.
Given Doug’s arrival at the peak of industry revenue declines in 2009, he focused his
early efforts on at G&K on stabilizing profitability. To that end, G&K saw ~200bps of
operating margin expansion from C2009 to C2011, while Uniform Services peers saw
operating margin contraction. G&K lagged Uniform Services peers on returning to
positive y/y organic revenue growth post-GFC, taking until C2011. However, over the
course of the next five years, G&K’s organic revenues grew while operating margins
simultaneously improved as the firm’s transformation took hold.
We point out the transformation of G&K — which focused on improving culture,
productivity, and execution — took substantial time and was not linear. However,
in the end, EPS grew at a ~16% CAGR from its trough year while the GK stock
price appreciated an annualized 19% over Milroy’s eight-year tenure.
Table 6: G&K Services fundamental performance; C2006-C2016
$ in millions, except per share
Revenues
% change y/y o/cc
Operating Income
Operating Margin
EPS
EPS growth (y/y %)
C2006
$907
6.2%
$74
8.2%
$1.88
0.0%
C2007
$975
3.4%
$90
9.2%
$2.31
23.1%
C2008
$990
(0.9%)
$82
8.3%
$2.10
(9.0%)
C2009
$863
(11.4%)
$48
5.5%
$1.23
(41.4%)
C2010
$811
(6.1%)
$55
6.7%
$1.39
13.1%
C2011
$851
5.7%
$65
7.6%
$1.89
35.3%
C2012
$872
5.1%
$59
6.8%
$1.46
(22.6%)
C2013
$883
3.7%
$93
10.6%
$2.82
93.0%
C2014
$922
5.8%
$106
11.5%
$3.16
12.1%
C2015
$950
5.1%
$116
12.2%
$3.38
7.0%
C2016
$983
2.0%
$125
12.7%
$3.97
17.3%
Source: Company reports and J.P. Morgan.
Figure 33: G&K Services - GK stock price and EBITDA multiple; 2009-2017
G&K acquisition by
Cintas announced
$120
$100
15.0x
12.5x
$80
10.0x
$60
7.5x
$40
5.0x
$20
$0
Jan-09
2.5x
Doug Milroy named G&K CEO
0.0x
Jan-10
Jan-11
Jan-12
GK Stock Price (left)
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
EV/ NTM EBITDA (consenus; right)
Source: Capital IQ
39
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
VSTS Valuation and Price Target
We are initiating coverage of Vestis (VSTS) at Overweight (OW) with a December 2024
price target of $20 per share, representing (38% upside from Vestis’ last closing price).
On valuation, our price target is based on a P/E multiple of 15.3x applied to our C2025E
adjusted EPS estimate (post stock-based compensation) of $1.31. This multiple reflects
a notable uplift versus the VSTS stock’s current valuation of 12.4x on our next 12
month (NTM) adjusted EPS forecast (note that EPS should face downward pressure in
F2024, once interest expenses are incurred by Vestis). Our $20 price target also equates
to an implied enterprise value multiple of 8.6x our C2025E EBITDA (post-SBC)
forecast.
Our valuation is based on a comparable company approach, and we assess the VSTS
stock relative to the firm’s two established public peers, Cintas (CTAS) and UniFirst
(UNF). On an NTM P/E basis, the VSTS stock (at 12.4x) currently trades at a notable
discount to both CTAS (34.8x) and UNF (20.5x).
Figure 34: Uniform Services P/E multiples
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
0.0x
34.8x
33.4x
20.5x
30.4x
19.5x
13.2x
12.4x
NTM P/E
11.1x
C2024E P/E
VSTS
CTAS
18.0x
C2025E P/E
UNF
Source: J.P. Morgan estimates.
Note: All multiples are post-stock based compensation. We add back transformation costs, M&A integration expenses, and acquired
intangible amortization for all three firms.
We also look to EV/EBITDA multiples, as Vestis is comparatively quite indebted
relative to Cintas/UniFirst. We expect Vestis’ net leverage to be in the range of ~3.6x
LTM EBITDA (post stock-based compensation) for the Sept. 2023 quarter. Cintas and
UniFirst each operate with typically low net leverage, when they borrow at all (we
consider UniFirst to be a family heritage business and family involvement often results
in less inclination to use debt). Vestis also trades at a notable discount to peers
(especially Cintas) using EV/EBITDA multiples.
40
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
Figure 35: Uniform Services companies’ total debt and net leverage
JPMORGAN
Figure 36: Uniform Services EV/EBITDA multiples
total debt ($bln; left) and net leverage (net debt/LTM EBITDA; right)
$3.0bln
$2.5bln
$2.0bln
$1.5bln
5.0x
$2.5bln
$0.5bln
(0.9x)
Cintas
Total Debt ($bln; left)
21.9x
20.3x
15.0x
2.0x
1.0x
$1.0bln
22.4x
20.0x
3.0x
$1.5bln
Vestis*
25.0x
4.0x
3.6x
1.0x
10.0x
0.0x
5.0x
(1.0x)
0.0x
UniFirst
9.5x
8.2x
NTM EV/EBITDA
Net Leverage
9.1x
7.8x
C2024E EV/EBITDA
VSTS CTAS UNF
Source: Company reports and J.P. Morgan estimates.
Note: Vestis’ debt totals are as of spin date and the firm’s net leverage is our estimate for 4QF23E
(Sept. 2023)
CTAS
8.5x
7.1x
C2025E EV/EBITDA
UNF
Source: J.P. Morgan estimates.
Note: All multiples are post-stock based compensation. We add back transformation costs, M&A
integration expenses, and acquired intangible amortization for all three firms.
Arriving at a Multiple for Vestis
In valuing Uniform Services companies, we look to two key fundamental inputs:
organic, constant currency (o/cc) revenue growth and adjusted operating margin. We
assess Vestis’ fundamentals to be much closer to peer UniFirst today, but with the
opportunity to become more Cintas-like over time. Specifically, we expect o/cc
revenue growth to rise from Vestis’ historical 2% annual pace towards a level more
consistent with the pace of the industry in the years ahead (see Figure 37).
E
-5
4
1
0
2
;C
%
h
(/)w
y
a,tu
csg
ev
S
rm
ifo
n
U
Figure 37: Uniform Services organic, constant currency (o/cc) revenue growth y/y %; C2014-C2025E
9.3%
10%
8.0%
8%
5.1%
6%
5.0%
7.2%
5.1%
5.0%
5.1%
4.0%
4%
2%
7.2%
6.3%
2.0%
-
C2014-C2022 CAGR
C2023E
Vestis (VSTS)
C2024E
Cintas (CTAS)
C2025E
UniFirst (UNF)
Source: Company reports and J.P. Morgan estimates.
Note: Vestis’ C2014-2022 data are for Aramark’s Uniform Services segment.
Shifting to profitability, we look to incremental (year/year) margins as the best reflection
of a firm’s ability to drive profitable growth,. We expect a transformed Vestis’
incremental margins will more-closely approximate those produced by Cintas than
the historical or prospective profile of UniFirst.
41
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Figure 38: Uniform Services incremental (y/y) adjusted operating margins; C2014-C2025E
40%
30%
27%
30%
19%
20%
10%
25% 27%
27%
22%
7%
15%
13%
4%
0%
(4%)
(10%)
Cumulative
C2014-C2022A
C2023E
Vestis (VSTS)
Cintas (CTAS)
C2024E
C2025E
UniFirst (UNF)
Source: Company reports and J.P. Morgan estimates.
Notes: Vestis’ C2014-2022 data are for Aramark’s Uniform Services segment. Margins are post-stock based compensation, but we add
back transformation costs, M&A integration expenses, and acquired intangible amortization for all three firms.
Price target derivation
To conclude, we do respect that there are unique risks to the Vestis story — the firm is
pivoting to a growth culture, the balance sheet is levered in a cyclical industry, and spinoffs emerge without an operating or capital allocation track record. Still, on balance we
gauge that the VSTS stock should trade at a more-UNF-like P/E and EV/EBITDA
multiples at present. As time goes on, and once the firm’s performance can be
measured against stated ambitions, we see a route to the VSTS stock trading at
multiples somewhere in the (very wide) range between its two peers, UNF and
CTAS.
Putting the pieces together, we are introducing a Dec-2024 price target of $20 per share,
equating to 15.3x our C2025E EPS (post-stock based compensation) and implying an
enterprise value of 8.6x our C2025E adjusted EBITDA forecast (also post-SBC). Our
price target represents 38% upside from the last VSTS closing price.
Table 7: VSTS Price Target Derivation
Last Price
NTM Adj. EPS
NTM P/E
C2025 EPS
C2025 P/E
Target P/E
Dec 2024 PT
Upside/Downside
$14.50
$1.17
12.4x
$1.31
11.1x
15.3x
$20.00
38%
Implied EV/EBITDA at PT
Shares out.
131.4
Market Cap
$2,627
Net Debt*
$1,397
*pro-forma, 4QF23E
Enterprise value
$4,025
C2025 EBITDA
$468
Implied EV/EBITDA
8.6x
Source: J.P. Morgan estimates.
42
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Vestis Model
Table 8: Vestis Income Statement
($ in millions, except per share data)
Fiscal year ends September
12/31/22 03/31/23 06/30/23 09/30/23
FY2023E
FY2020A FY2021A FY2022A 1QF23A
12/31/23 03/31/24 06/30/24 09/30/24
FY2024E
2QF23A
3QF23A
2QF24E
3QF24E
2QF25E
3QF25E
4QF25E FY2025E CY2025
1QF26E
$699.3
5.5%
$709.5
4.4%
$712.1 $2,821.5
4.2%
5.0%
$735.2
4.9%
$733.5
4.9%
$743.7
4.8%
$746.4 $2,958.8
4.8%
4.9%
$771.9
5.0%
$770.2
5.0%
$780.9
5.0%
$783.7 $3,106.8 $3,145.3
5.0%
5.0%
5.0%
$810.5
5.0%
9.2%
6.7%
6.2%
4.9%
4.5%
5.5%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
Total Adjusted Operating Expenses (excl. D&A)
Y/Y growth, %
% of Total Revenues
Y/Y BPS Change
$2,245.3 $2,176.7 $2,305.4
-3%
6%
88%
89%
86%
97
-281
$606.1
6%
87%
26
$602.2
5%
86%
-7
$602.0
3%
85%
-76
$601.7 $2,412.0
3%
5%
85%
85%
-68
-31
$634.0
5%
86%
-28
$629.7
5%
86%
-27
$628.4
4%
84%
-35
$628.1 $2,520.2
4%
4%
84%
85%
-35
-31
$660.3
4%
86%
-70
$655.8
4%
85%
-70
$654.4
4%
84%
-70
$654.0 $2,624.4 $2,651.8
4%
4%
4%
83%
84%
84%
-70
-70
-70
$687.6
4%
85%
-70
Total Operating Profit - Adjusted
Y/Y growth, %
Adj. Op. Margin
Y/Y BPS Change
Incremental operating margin
$179.5
7.0%
$146.6
-18.3%
6.0%
(104)
31.2%
$247.2
68.7%
9.2%
323
43.7%
$60.6
5.5%
8.6%
-4
8.0%
$63.2
9.4%
9.0%
32
14.9%
$73.6
14.6%
10.4%
93
31.6%
$76.3
12.6%
10.7%
80
29.6%
$273.8
10.7%
9.7%
50
19.7%
$66.1
9.1%
9.0%
34
15.9%
$68.8
8.8%
9.4%
34
16.3%
$79.8
8.3%
10.7%
35
17.9%
$82.6
8.2%
11.1%
35
18.3%
$297.3
8.6%
10.0%
34
17.1%
$74.8
13.2%
9.7%
70
23.7%
$77.6
12.8%
10.1%
70
24.1%
$89.2
11.9%
11.4%
70
25.4%
$92.2
11.6%
11.8%
70
25.8%
$333.9
12.3%
10.7%
70
24.7%
$343.3
12.2%
10.9%
70
24.9%
$84.2
12.6%
10.4%
70
24.4%
Adjusted Operating Profit
Depreciation & Amortization
% of revenues
Share-based compensation
% of revenues
$179.5
$137.2
5.4%
$6.8
0.3%
$146.6
$133.3
5.4%
$15.4
0.6%
$247.2
$134.4
5.0%
$17.4
0.6%
$60.6
$33.9
4.8%
$3.9
0.6%
$63.2
$33.9
4.8%
$3.9
0.6%
$73.6
$33.9
4.8%
$3.9
0.5%
$76.3
$34.0
4.8%
$3.9
0.5%
$273.8
$135.7
4.8%
$15.5
0.5%
$66.1
$35.1
4.8%
$4.0
0.5%
$68.8
$35.1
4.8%
$4.0
0.5%
$79.8
$35.5
4.8%
$4.0
0.5%
$82.6
$35.7
4.8%
$4.1
0.5%
$297.3
$141.4
4.8%
$16.1
0.5%
$74.8
$36.9
4.8%
$4.2
0.5%
$77.6
$36.8
4.8%
$4.2
0.5%
$89.2
$37.3
4.8%
$4.2
0.5%
$92.2
$37.4
4.8%
$4.3
0.5%
$333.9
$148.5
4.8%
$16.9
0.5%
$343.3
$150.3
4.8%
$17.1
0.5%
$84.2
$38.7
4.8%
$4.4
0.5%
Adjusted EBITDA (Company/Consensus Method - Pre-SBC)
EBITDA margin (Company/Consensus Method - Pre-SBC)
Y/Y BPS Change
$298.6
11.7%
$270.3
11.0%
(65)
$373.1
13.9%
288
$91.9
13.1%
(33)
$94.5
13.5%
5
$104.9
14.8%
70
$107.7
15.1%
60
$399.0
14.1%
26
$98.7
13.4%
32
$101.3
13.8%
31
$112.9
15.2%
39
$115.8
15.5%
39
$428.7
14.5%
35
$109.4
14.2%
74
$112.1
14.6%
74
$124.3
15.9%
74
$127.4
16.3%
74
$473.2
15.2%
74
$484.7
15.4%
74
$120.9
14.9%
74
$0.2
($1.1)
$2.3
($0.1)
($0.1)
($0.1)
-$0.1
($0.4)
$28.1
$28.1
$28.1
$28.1
$112.5
$28.1
$28.1
$28.1
$28.1
$112.5
$112.5
$28.1
$97.4
$190.0
$23.1
$48.3
23.7%
25.4%
$74.3 $141.679
$50.6
$13.0
25.7%
$37.6
$47.8
$12.3
25.7%
$35.5
$61.9
$15.9
25.7%
$46.0
$69.9
$18.0
25.7%
$52.0
$230.3
$59.2
25.7%
$171.1
$31.5
$8.1
25.7%
$23.4
$34.2
$8.8
25.7%
$25.4
$45.2
$11.6
25.7%
$33.5
$48.0
$12.3
25.7%
$35.7
$158.8
$40.8
25.7%
$118.0
$40.2
$10.3
25.7%
$29.9
$43.0
$11.1
25.7%
$32.0
$54.6
$14.0
25.7%
$40.6
$57.6
$14.8
25.7%
$42.8
$195.4
$50.2
25.7%
$145.2
$204.8
$52.6
25.7%
$152.2
$49.6
$12.7
25.7%
$36.9
$6.5
$0.0
$0.0
$3.5
$0.0
$0.1
($2.6)
$7.5
25.7%
$6.5
$5.5
$0.0
$3.4
$0.0
$0.1
($4.0)
$11.5
25.7%
$6.5
($0.8)
$0.0
$6.0
$0.0
$0.1
($3.0)
$8.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$26.0
$4.7
$0.0
$13.0
$0.0
$0.2
($11.3)
$32.5
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$26.0
$0.0
$0.0
$0.0
$0.0
$0.0
($6.7)
$19.3
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$26.0
$0.0
$0.0
$0.0
$0.0
$0.0
($6.7)
$19.3
25.7%
$26.0
$0.0
$0.0
$0.0
$0.0
$0.0
($6.7)
$19.3
25.7%
$6.5
$0.0
$0.0
$0.0
$0.0
$0.0
($1.7)
$4.8
25.7%
$45.1
6.4%
$47.0
6.7%
$54.8
7.7%
$56.8
8.0%
$203.7
7.2%
$28.2
3.8%
$30.2
4.1%
$38.4
5.2%
$40.5
5.4%
$137.3
4.6%
$34.7
4.5%
$36.8
4.8%
$45.4
5.8%
$47.6
6.1%
$164.5
5.3%
$171.5
5.5%
$41.7
5.1%
Y/Y Growth, % -- Organic Constant Currency, Same Week Basis
Interest Expense and Other, net
Pretax Income (GAAP)
Income Tax Expense (Income)
GAAP Effective Tax Rate
GAAP Net Income
ADJUSTMENTS
Amortization of Acquired Intangibles
Severance and Other Charges
Merger and Integration Related Charges
Separation Related Charges
Estimated Impact of 53rd Week
Gain, Losses, Settlements and Other Items
Tax Impact of Adjustments to Adjusted Net Income
Total After Tax Adjustments
All-in effective tax rate
Adj. Net Income (post-SBC)
Adj. Net Margin (post-SBC)
$2,562.0 $2,456.6 $2,687.0
-4.1%
9.4%
-4.3%
$149.5
$37.9
25.3%
$111.65
-2.6%
4QF24E FY2024E 1QF25E
12/31/25
FY2026E
$700.6
6.0%
Total Revenues
Y/Y Growth, %
4QF23E FY2023E 1QF24E
12/31/24 03/31/25 06/30/25 09/30/25
FY2025E
5.0%
Diluted Shares Outstanding
130.7
131.3
131.4
131.4
131.2
131.4
131.4
131.4
131.4
131.4
131.4
131.4
131.4
131.4
131.4
131.4
131.4
Adjusted EPS (published) (ex PPA, incl stock comp)
Y/Y Growth, %
$0.34
$0.36
$0.42
$0.43
$1.55
$0.21
-37.7%
$0.23
-35.8%
$0.29
-29.9%
$0.31
-28.7%
$1.05
-32.7%
$0.26
22.9%
$0.28
21.7%
$0.35
18.3%
$0.36
17.6%
$1.25
19.8%
$1.31
19.3%
$0.32
20.2%
Source: Company reports and J.P. Morgan estimates.
43
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Table 9: Vestis Balance Sheet
($ in millions, except per share data)
Fiscal year ends September
09/30/21
09/30/22
06/30/23
09/30/23
12/31/23
03/31/24
Vestis Standalone/Pro-forma
06/30/24 09/30/24
3QF23A
4QF23E FY2023E CY2023
1QF24E
2QF24E
3QF24E
4QF24E
FY2024E
12/31/24
03/31/25
06/30/25
09/30/25
09/30/25
12/31/25
CY2024
1QF25E
2QF25E
3QF25E
4QF25E
FY2025E
CY2025
1QF26E
FY2021A
FY2022A
ASSETS
Cash and Cash Equivalents
Receivables
Inventories
Rental Merchandise in Service
Prepayments and Other Current Assets
Total Current Assets
$41.1
$317.3
$203.4
$353.7
$16.4
$931.9
$23.7
$368.7
$183.4
$393.1
$18.3
$987.3
$14.2
$90.0
$90.0
$85.4
$85.4
$388.4
$390.2
$390.2
$402.8
$402.8
$209.1
$208.5
$208.5
$219.7
$219.7
$395.8
$394.8
$394.8
$416.0
$416.0
$16.0
$16.1
$16.1
$16.6
$16.6
$1,023.6 $1,099.7 $1,099.7 $1,140.5 $1,140.5
$118.4
$401.9
$218.2
$413.2
$16.6
$1,168.3
$153.7
$407.5
$217.8
$412.4
$16.8
$1,208.2
$193.0
$409.0
$217.7
$412.1
$16.8
$1,248.6
$193.0
$409.0
$217.7
$412.1
$16.8
$1,248.6
$194.9
$423.0
$228.8
$433.2
$17.4
$1,297.3
$194.9
$423.0
$228.8
$433.2
$17.4
$1,297.3
$235.5
$422.0
$227.3
$430.3
$17.4
$1,332.5
$278.6
$427.9
$226.8
$429.4
$17.6
$1,380.3
$325.8
$429.4
$226.7
$429.1
$17.7
$1,428.7
$325.8
$429.4
$226.7
$429.1
$17.7
$1,428.7
$334.1
$444.1
$238.3
$451.2
$18.3
$1,486.0
$334.1
$444.1
$238.3
$451.2
$18.3
$1,486.0
Property and Equipment, Net
Goodwill
Other Intangible Assets
Operating Lease Assets
Other Assets
Total Assets
$665.5
$964.9
$276.9
$74.8
$194.4
$3,108.4
$649.6
$963.4
$264.3
$72.6
$195.9
$3,133.0
$652.4
$646.2
$646.2
$639.6
$639.6
$963.8
$963.8
$963.8
$963.8
$963.8
$245.6
$239.1
$239.1
$232.6
$232.6
$60.6
$60.6
$60.6
$60.6
$60.6
$208.1
$208.1
$208.1
$208.1
$208.1
$3,154.0 $3,217.5 $3,217.5 $3,245.2 $3,245.2
$633.1
$963.8
$226.1
$60.6
$208.1
$3,260.0
$626.4
$963.8
$219.6
$60.6
$208.1
$3,286.6
$619.6
$963.8
$213.1
$60.6
$208.1
$3,313.7
$619.6
$963.8
$213.1
$60.6
$208.1
$3,313.7
$612.4
$963.8
$206.6
$60.6
$208.1
$3,348.8
$612.4
$963.8
$206.6
$60.6
$208.1
$3,348.8
$605.2
$963.8
$200.1
$60.6
$208.1
$3,370.2
$597.8
$963.8
$193.6
$60.6
$208.1
$3,404.1
$590.3
$963.8
$187.1
$60.6
$208.1
$3,438.6
$590.3
$963.8
$187.1
$60.6
$208.1
$3,438.6
$582.4
$963.8
$180.6
$60.6
$208.1
$3,481.5
$582.4
$963.8
$180.6
$60.6
$208.1
$3,481.5
LIABILITIES & EQUITY
Current Operating & Financing Lease Liabilities
Accounts Payable
Accrued Expenses and Other Current Liabilities
Total Current Liabilities
$43.6
$133.4
$206.3
$383.3
$41.4
$167.1
$193.7
$402.2
$43.7
$145.5
$178.1
$367.3
$43.7
$152.8
$183.8
$380.4
$43.7
$151.8
$183.4
$378.9
$43.7
$151.5
$185.9
$381.2
$43.7
$151.4
$186.6
$381.7
$43.7
$151.4
$186.6
$381.7
$43.7
$159.2
$193.0
$395.9
$43.7
$159.2
$193.0
$395.9
$43.7
$158.1
$192.5
$394.4
$43.7
$157.8
$195.2
$396.7
$43.7
$157.7
$195.9
$397.3
$43.7
$157.7
$195.9
$397.3
$43.7
$165.8
$202.6
$412.1
$43.7
$165.8
$202.6
0
Long-Term Borrowings
Noncurrent Operating & Finance Lease Liabilities
Deferred Income Taxes
Other Noncurrent Liabilities
Total Liabilities
$137.9
$184.3
$70.9
$776.40
$140.8
$201.8
$52.4
$797.20
- $1,487.5 $1,487.5 $1,487.5 $1,487.5
$148.5
$141.6
$141.6
$134.6
$134.6
$203.7
$203.7
$203.7
$203.7
$203.7
$52.7
$52.7
$52.7
$52.7
$52.7
$772.20 $2,252.20 $2,252.20 $2,258.80 $2,258.80
$1,487.5
$127.7
$203.7
$52.7
$2,250.40
$1,487.5
$120.8
$203.7
$52.7
$2,245.80
$1,487.5
$113.8
$203.7
$52.7
$2,239.40
$1,487.5
$113.8
$203.7
$52.7
$2,239.40
$1,487.5
$106.9
$203.7
$52.7
$2,246.60
$1,487.5
$106.9
$203.7
$52.7
$2,246.60
$1,487.5
$100.0
$203.7
$52.7
$2,238.10
$1,487.5
$93.0
$203.7
$52.7
$2,233.60
$1,487.5
$86.1
$203.7
$52.7
$2,227.20
$1,487.5
$86.1
$203.7
$52.7
$2,227.20
$1,487.5
$79.2
$203.7
$52.7
$2,235.10
$1,487.5
$79.2
$203.7
$52.7
$1,823.00
Total Shareholders Equity
$2,332.0
$2,335.8
$2,381.9
$986.4
$1,009.5
$1,040.9
$1,074.4
$1,074.4
$1,102.2
$1,102.2
$1,132.1
$1,170.6
$1,211.4
$1,211.4
$1,246.4
$1,658.5
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
$3,108.4
$3,133.0
$3,154.0 $3,217.5 $3,217.5 $3,245.2 $3,245.2
$3,260.0
$3,286.6
$3,313.7
$3,313.7
$3,348.8
$3,348.8
$3,370.2
$3,404.1
$3,438.6
$3,438.6
$3,481.5
$3,481.5
Total Debt
Net Debt
($41.1)
($23.7)
- $1,487.5 $1,487.5 $1,487.5 $1,487.5
($14.2) $1,397.4 $1,397.4 $1,402.1 $1,402.1
$1,487.5
$1,369.0
$1,487.5
$1,333.7
$1,487.5
$1,294.5
$1,487.5
$1,294.5
$1,487.5
$1,292.6
$1,487.5
$1,292.6
$1,487.5
$1,251.9
$1,487.5
$1,208.9
$1,487.5
$1,161.6
$1,487.5
$1,161.6
$1,487.5
$1,153.3
$1,487.5
$1,153.3
LTM Adj. EBITDA (pre-SBC)
LTM Adj. EBITDA (post-SBC)
$270.3
$254.9
$373.1
$355.7
$390.5
$374.5
$399.0
$383.5
$399.0
$383.5
$405.8
$390.2
$405.8
$390.2
$412.7
$397.0
$420.6
$404.7
$428.7
$412.6
$428.7
$412.6
$439.4
$423.1
$439.4
$423.1
$450.2
$433.7
$461.6
$444.9
$473.2
$456.3
$473.2
$456.3
$484.7
$467.6
$484.7
$467.6
Gross Debt to EBITDA (pre-SBC; company method)
Net Debt to EBITDA (pre-SBC; company method)
0.0x
-0.2x
0.0x
-0.1x
0.0x
0.0x
3.7x
3.5x
3.7x
3.5x
3.7x
3.5x
3.7x
3.5x
3.6x
3.3x
3.5x
3.2x
3.5x
3.0x
3.5x
3.0x
3.4x
2.9x
3.4x
2.9x
3.3x
2.8x
3.2x
2.6x
3.1x
2.5x
3.1x
2.5x
3.1x
2.4x
3.1x
2.4x
Gross Debt to EBITDA (post-SBC; JPM method)
Net Debt to EBITDA (post-SBC; JPM method)
0.0x
-0.2x
0.0x
-0.1x
0.0x
0.0x
3.9x
3.6x
3.9x
3.6x
3.8x
3.6x
3.8x
3.6x
3.7x
3.4x
3.7x
3.3x
3.6x
3.1x
3.6x
3.1x
3.5x
3.1x
3.5x
3.1x
3.4x
2.9x
3.3x
2.7x
3.3x
2.5x
3.3x
2.5x
3.2x
2.5x
3.2x
2.5x
Interest Expense (income)
Interest coverage (adj. operating income / interest)
($1.1)
($0.4)
$27.8
10.0x
$28.1
2.4x
$28.1
2.4x
$28.1
2.8x
$28.1
2.9x
$112.5
2.6x
$112.5
2.7x
$28.1
2.7x
$28.1
2.8x
$28.1
3.2x
$28.1
3.3x
$112.5
3.0x
$112.5
3.1x
$28.1
3.0x
Source: Company reports and J.P. Morgan estimates.
44
$2.3
$43.7
$145.1
$178.0
$366.8
$965.3
($0.1)
NM
$43.7
$145.1
$178.0
$366.8
$965.3
($0.1)
NM
NM
$43.7
$152.8
$183.8
$380.4
$986.4
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Table 10: Vestis Cash Flow Statement
($ in millions, except per share data)
Fiscal year ends September
09/30/20
09/30/21
09/30/22
06/30/23
09/30/23
Nine-months
FY2022A
3QF23A
4QF23E
FY2020A
FY2021A
Operating Activites:
Net Income
Depreciation & Amortization
Deferred Income Taxes
Share-Based Compensation Expense
(Gain)/Loss on Sales
Asset Write-Downs
Total Adjustments
$111.6
$137.2
($13.1)
$6.8
$130.9
$74.3
$133.3
($0.6)
$15.4
$34.5
$182.6
$141.7
$134.4
$20.6
$17.4
$26.2
$198.5
$7.7
$122.5
Changes in Noncash Working Capital:
Receivables
Inventories
Rental merchandise
Other current assets
Accounts payable
Accrued expenses
Total Changes in Noncash Working Capital
Incremental Working Capital as a % of Revenue
All Other Operating Activities
Net Cash Used in Operating Activities
$19.3
($59.3)
$46.7
$0.4
($12.1)
($6.5)
($11.4)
-0.4%
$6.0
$231.3
($30.9)
$6.5
($10.5)
$0.5
$10.3
$15.2
($8.9)
-0.4%
$1.7
$244.3
($53.9)
($0.6)
($42.2)
($2.6)
$31.4
($31.5)
($99.4)
-3.7%
($1.7)
$232.8
Investing Acitivities:
Purchases of Property & Equipment
Total Capital Expenditures as a % of Revenues
All Other Operating Activities
= Net Cash Used in Investing Activities
($58.1)
2.3%
$14.7
($43.4)
($90.1)
3.7%
($13.0)
($103.2)
Financing Activites:
Proceeds from Long-Term Borrowings
Payments Of Finance Lease Oblilgations
Dividends Paid
Net Cash Distributions to Parent
Other Financing Activities
= Net Cash Provided By Financing Activities
($32.1)
($143.0)
($175.1)
($29.9)
($95.6)
($125.5)
$119.2
$101.7
$1.6
$11.6
-
$52.0
$34.0
$3.9
-
-
09/30/23
12/31/23
Vestis Standalone/Pro-forma
03/31/24 06/30/24 09/30/24
09/30/24
12/31/24
03/31/25
06/30/25
09/30/25
09/30/25
12/31/25
FY2023E
1QF24E
2QF24E
3QF24E
4QF24E
FY2024E
1QF25E
2QF25E
3QF25E
4QF25E
FY2025E
1QF26E
$171.1
$135.7
$1.6
$15.5
$23.4
$35.1
$25.4
$35.1
$33.5
$35.5
$35.7
$35.7
$118.0
$141.4
$29.9
$36.9
$32.0
$36.8
$40.6
$37.3
$42.8
$37.4
$145.2
$148.5
$36.9
$38.7
$4.0
-
$4.0
-
$4.0
-
$4.1
-
$16.1
-
$4.2
-
$4.2
-
$4.2
-
$4.2
-
$16.8
-
$4.4
-
-
$37.9
$7.7
$160.4
$39.1
$39.0
$39.6
$39.7
$157.5
$41.1
$41.0
$41.5
$41.7
$165.3
$43.1
($18.3)
($25.2)
($1.2)
$2.3
($22.1)
($17.6)
($82.1)
-3.9%
($15.7)
$143.9
($1.7)
$0.5
$1.0
($0.1)
($0.4)
($0.1)
($0.8)
-0.1%
$89.1
($20.1)
($24.7)
($0.2)
$2.3
($22.5)
($17.7)
($82.8)
-2.9%
($15.7)
$233.0
($12.7)
($11.2)
($21.2)
($0.5)
$7.8
$5.8
($32.0)
-4.3%
$30.6
$0.9
$1.5
$2.8
$0.0
($1.0)
($0.4)
$3.8
0.5%
$68.2
($5.6)
$0.4
$0.8
($0.2)
($0.3)
$2.6
($2.3)
-0.3%
$70.8
($1.4)
$0.1
$0.2
($0.1)
($0.1)
$0.7
($0.6)
-0.1%
$74.8
($18.8)
($9.1)
($17.3)
($0.8)
$6.4
$8.6
($31.1)
-1.1%
$244.4
($14.0)
($11.2)
($21.1)
($0.6)
$7.8
$6.4
($32.7)
-4.2%
$38.2
$1.0
$1.6
$3.0
$0.0
($1.1)
($0.4)
$4.0
0.5%
$76.9
($5.9)
$0.5
$0.9
($0.2)
($0.3)
$2.7
($2.4)
-0.3%
$79.7
($1.5)
$0.1
$0.3
($0.1)
($0.1)
$0.7
($0.6)
-0.1%
$83.9
($20.4)
($9.0)
($17.0)
($0.8)
$6.2
$9.3
($31.7)
-1.0%
$278.8
($14.7)
($11.6)
($22.0)
($0.6)
$8.1
$6.7
($34.2)
-4.2%
$45.8
($76.4)
2.8%
($9.7)
($86.1)
($52.6)
2.5%
$11.0
($41.6)
($21.4)
3.0%
($21.4)
($74.0)
2.6%
$11.0
($63.0)
($22.1)
3.0%
($22.1)
($22.0)
3.0%
($22.0)
($22.3)
3.0%
($22.3)
($22.4)
3.0%
($22.4)
($88.8)
3.0%
($88.8)
($23.2)
3.0%
($23.2)
($23.1)
3.0%
($23.1)
($23.4)
3.0%
($23.4)
($23.5)
3.0%
($23.5)
($93.2)
3.0%
($93.2)
($24.3)
3.0%
($24.3)
($28.0)
($134.5)
($162.5)
- $1,500.0 $1,500.0
($20.8)
($6.9)
($27.7)
($91.7) ($1,472.0) ($1,563.7)
($13.0)
($13.0)
($112.5)
$8.1
($104.4)
($6.9)
($6.3)
($13.2)
($6.9)
($6.3)
($13.2)
($6.9)
($6.3)
($13.2)
($6.9)
($6.3)
($13.2)
($27.7)
($25.0)
($52.7)
($6.9)
($6.3)
($13.2)
($6.9)
($6.3)
($13.2)
($6.9)
($6.3)
($13.2)
($6.9)
($6.3)
($13.2)
($27.7)
($25.0)
($52.7)
($6.9)
($6.3)
($13.2)
Effect of foreign exchange rates on cash and cash equivalents
$0.1
$1.1
($1.5)
$0.7
$0.0
$0.7
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
Cash and Cash Equivalents, Beginning of Period
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, End of Period
$11.4
$12.9
$24.3
$24.3
$16.8
$41.106
$41.1
($17.4)
$23.7
$23.7
($9.5)
$14.2
$14.2
$75.8
$90.0
$23.7
$66.3
$90.0
$90.0
($4.7)
$85.4
$85.4
$33.1
$118.4
$118.4
$35.3
$153.7
$153.7
$39.2
$193.0
$90.0
$102.9
$193.0
$193.0
$1.9
$194.9
$194.9
$40.7
$235.5
$235.5
$43.1
$278.6
$278.6
$47.2
$325.8
$193.0
$132.8
$325.8
$325.8
$8.3
$334.1
Free Cash Flow (CFO minus capex)
FCF/EBITDA Conversion (Post-SBC)
$173.2
$154.2
60.5%
$156.4
44.0%
$91.3
32.6%
$67.7
65.2%
$159.0
41.5%
$8.5
9.0%
$46.2
47.5%
$48.5
44.6%
$52.4
46.9%
$155.6
37.7%
$15.1
14.3%
$53.8
49.9%
$56.3
46.9%
$60.4
49.0%
$185.6
40.7%
$21.5
18.5%
Source: Company reports and J.P. Morgan estimates.
45
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Investment Thesis, Valuation and Risks
Vestis (Overweight; Price Target: $20.00)
Investment Thesis
Vestis (VSTS) is the second-largest provider, by market share, in the attractive North
America Uniform Services industry. The market opportunity for Uniform Services is large,
with a U.S. total addressable market (TAM) of $45bln as of 2022. Revenues at Vestis are
largely earned from weekly customer interactions along dedicated routes, which results in
a scalable business model with less volatility and attractive incremental margins from both
volume growth and added route density.
Today’s Vestis was previously owned by food and facilities service provider Aramark
(ARMK; OW) for nearly half a century. Aramark entered the Uniform Services industry in
1977, at a time when conglomerates were more popular. However, compelling synergies
never materialized between uniform and food/facilities services. High levels of debt at
Aramark led to periods where Aramark Uniform Services (AUS) was run as a source of cash
flow. Over the last decade, Vestis’ organic revenues have grown ~2% per year, lagging
the industry.
In early 2018, Aramark reversed course and acquired uniform provider AmeriPride for
$1bln. At acquisition, AmeriPride added~$600mm to the AUS revenue base of $1.56bln.
However, the two years prior to the deal were the high-water mark for AUS margins.
In October 2021, a new Aramark management team hired Kim Scott as President and CEO
of AUS. Kim’s hire presaged the spin-off of Vestis two years later. Under its own new
management team, we gauge that Vestis has been reinvigorated to drive both enhanced
organic revenue growth and meaningful margin expansion. Over the last two years, Vestis’
new leadership team has been building out credible proof points that the firm’s growth
transformation is progressing well. Looking ahead, we find management’s datadriven plans for enhancing client service, winning new business, and operating a more
efficient route network to be compelling.
Public uniform providers benefit from ample white space and strong outsourcing
trends. As of 2022, Vestis had 5% market share of the $45bln U.S. addressable market for
Uniform Services, based on our estimates. Nearly 75% of the market is served by smaller
providers or not vended at all, indicating ample white space. Also, the industry is benefiting
from strong first-time rental trends in newer end markets due to a greater focus on sanitation
standards and worker safety.
Vestis has a compelling opportunity to narrow the growth gap versus peers. We expect
Vestis to accelerate organic revenue growth from the firm’s historical ~2% CAGR (C2014C2022) into the 5+% range prospectively. Such growth would be in-line with our
expectations for peer UniFirst (UNF) and slightly below what we expect for industry leader
Cintas (CTAS). By our observation, organic, constant currency (o/cc) revenue growth is the
top determinant of valuation within the Business Services sector, and we expect accelerated
o/cc revenue growth will benefit the VSTS multiple.
46
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Similar transformations have succeeded in Uniform Services. Our equity research team
covered Uniform Services provider G&K Services (previously public) for almost a decade
prior to its acquisition by Cintas. Until the appointment of CEO Doug Milroy in 2009, G&K
had a long track record of below-industry organic revenue growth rates and operating
margins. Doug’s ultimately successful strategic plan to transform G&K focused on
customer retention, route efficiency/density, sales force productivity, and overhead cost
management. By the time the firm was acquired by Cintas in 2017, G&K had grown EPS
at a ~16% CAGR from its trough year and the GK stock price appreciated an annualized 19%
over eight years.
Valuation
We are establishing a December 2024 price target of $20 per share for VSTS shares,
representing 38% upside the last closing price. Our price target is based on a P/E multiple
of 15.3x applied to our C2025E adjusted EPS estimate (post stock-based compensation).
Our PT also implies an enterprise value of 8.6x our C2025E adjusted EBITDA forecast (also
post-SBC).
Our valuation is based on a comparable company approach, and we assess the VSTS stock
relative to the firm’s two established public peers, Cintas (CTAS; 34.8x NTM EPS) and
UniFirst (UNF; 20.5x NTM EPS). Presently, we gauge that the VSTS stock should trade at
more UNF-like multiples. As time goes on, and once the firm’s performance can be
measured against stated ambitions, we see a route to the VSTS stock trading at multiples
somewhere in the (very wide) range between its two peers. VSTS shares have traded
poorly since the separation from Aramark, declining 27% from initial “when issued” pricing
(vs a 2% rise in the S&P 500).
Risks to Rating and Price Target
Above average financial leverage. Vestis debuted as a highly encumbered company, with
$1.5bln in outstanding debt. We expect the firm’s net leverage to be in the range of ~3.6x
LTM EBITDA (post stock-based compensation) for the Sept. 2023 quarter. We do think the
firm’s present level of net leverage could preclude Vestis from participating in scaled M&A.
Highly unionized frontline workforce. Creating a growth culture will be an important
piece of driving the fundamental improvements management foresees. Pivoting an
organization’s operating priorities is rarely frictionless, especially with a unionized
workforce. Over half of Vestis’ workforce and ~70% of plant workers/drivers are covered
by collective bargaining agreements.
Uniform Services is a cyclical industry. Uniform Services companies, including Vestis,
are more cyclical than some of the other Business Services companies we cover and are
sensitive to changes in macroeconomic factors, such as GDP growth and
employment. While our JPM economists no longer expect a U.S. recession is on the
immediate horizon, but we acknowledge the macroeconomic outlook remains
uncertain following a period of meaningful interest rate increases. Revenues for Vestis’
predecessor entity, Aramark Uniform, declined organically by 9% on a Same-Week Basis
in F2009 and another 6% in F2010 in the aftermath of the Global Financial Crisis. Aramark
Uniform organic revenues declined -7% y/y in C2020, due to the COVID-19 lockdowns/
recession.
Spin-offs have their own challenges. Spin-offs can allow for a more-focused management
approach and unlock value when investors value the sum of the parts more than they would
the previously combined firm. However, spin-offs also introduce a new layer of public
company costs. Also, smaller spin-offs may struggle to gain attention and investors may
47
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
prefer not to hold the spinco, creating selling pressure. Spin-offs also often lack a
management track record for fundamental performance and capital allocation.
48
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Vestis: Summary of Financials
Income Statement - Annual
Revenue
COGS
Gross profit
SG&A
Adj. EBITDA
D&A
Adj. EBIT
Net Interest
Adj. PBT
Tax
Minority Interest
Adj. Net Income
Reported EPS
Adj. EPS
DPS
Payout ratio
Shares outstanding
Balance Sheet & Cash Flow Statement
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Current assets
PP&E
LT investments
Other non current assets
Total assets
FY21A
FY21A
-
FY22A
FY22A
-
FY23E
2,821
384
(110)
274
0
274
(70)
204
1.55
1.55
131
FY23E
90
390
603
16
1,100
646
1,472
3,217
FY24E
2,959
413
(115)
297
(112)
185
(47)
137
1.05
1.05
131
FY24E
193
409
630
17
1,249
620
1,446
3,314
FY25E
3,107
456
(122)
334
(112)
221
(57)
165
1.25
1.25
131
FY25E
326
429
656
18
1,429
590
1,420
3,439
Short term borrowings
Payables
Other short term liabilities
Current liabilities
Long-term debt
Other long term liabilities
Total liabilities
Shareholders' equity
Minority interests
Total liabilities & equity
BVPS
y/y Growth
Net debt/(cash)
-
-
145
367
367
1,487
398
2,252
965
3,217
1,397
151
382
382
1,487
370
2,239
1,074
3,314
1,294
158
397
397
1,487
342
2,227
1,211
3,439
1,162
Cash flow from operating activities
o/w Depreciation & amortization
o/w Changes in working capital
Cash flow from investing activities
o/w Capital expenditure
as % of sales
Cash flow from financing activities
o/w Dividends paid
o/w Net debt issued/(repaid)
Net change in cash
Adj. Free cash flow to firm
y/y Growth
-
-
233
136
(83)
(63)
(74)
2.6%
(104)
0
1,500
66
170
-
244
141
(31)
(89)
(89)
3.0%
(53)
(25)
0
103
239
40.9%
279
148
(32)
(93)
(93)
3.0%
(53)
(25)
0
133
269
12.5%
Income Statement - Quarterly
Revenue
COGS
Gross profit
SG&A
Adj. EBITDA
D&A
Adj. EBIT
Net Interest
Adj. PBT
Tax
Minority Interest
Adj. Net Income
Reported EPS
Adj. EPS
DPS
Payout ratio
Shares outstanding
Ratio Analysis
Gross margin
EBITDA margin
EBIT margin
Net profit margin
FY21A
-
1Q23A
701A
88A
(27)A
61A
0A
61A
(16)A
45A
0.34A
0.34A
131A
FY22A
-
2Q23A
699A
91A
(27)A
63A
0A
63A
(16)A
47A
0.36A
0.36A
131A
FY23E
13.6%
9.7%
7.2%
3Q23A
709A
101A
(27)A
74A
0A
74A
(19)A
55A
0.42A
0.42A
131A
FY24E
13.9%
10.0%
4.6%
4Q23E
712
104
(28)
76
0
76
(20)
57
0.43
0.43
131
FY25E
14.7%
10.7%
5.3%
ROE
ROA
ROCE
SG&A/Sales
Net debt/equity
-
-
42.2%
12.7%
27.4%
1.4
13.5%
4.2%
14.8%
1.2
14.4%
4.9%
16.7%
1.0
P/E (x)
P/BV (x)
EV/EBITDA (x)
Dividend Yield
-
-
9.3
-
13.9
-
11.6
-
Sales/Assets (x)
Interest cover (x)
Operating leverage
-
-
1.8
0.9
0.9
NM
3.7
4.1
- 176.2% 246.3%
Revenue y/y Growth
EBITDA y/y Growth
Tax rate
Adj. Net Income y/y Growth
EPS y/y Growth
DPS y/y Growth
-
-
4.9%
7.6%
25.7% 25.7%
- (32.6%)
- (32.7%)
-
5.0%
10.6%
25.7%
19.8%
19.8%
-
Source: Company reports and J.P. Morgan estimates.
Note: $ in millions (except per-share data).Fiscal year ends Sep. o/w - out of which
49
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
Companies Discussed in This Report (all prices in this report as of market close on 13 October 2023, unless otherwise
indicated)
Cintas(CTAS/$512.63/OW), UniFirst(UNF/$160.47/UW)
Analyst Certification: The Research Analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple Research Analysts
are primarily responsible for this report, the Research Analyst denoted by an “AC” on the cover or within the document individually certifies,
with respect to each security or issuer that the Research Analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect the Research Analyst’s personal views about any and all of the subject securities or issuers; and (2) no part of any of the
Research Analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
Research Analyst(s) in this report. For all Korea-based Research Analysts listed on the front cover, if applicable, they also certify, as per KOFIA
requirements, that the Research Analyst’s analysis was made in good faith and that the views reflect the Research Analyst’s own opinion,
without undue influence or intervention.
All authors named within this report are Research Analysts who produce independent research unless otherwise specified. In Europe, Sector
Specialists (Sales and Trading) may be shown on this report as contacts but are not authors of the report or part of the Research Department.
Important Disclosures
Market Maker: J.P. Morgan Securities LLC makes a market in the securities of Cintas.
Market Maker/ Liquidity Provider: J.P. Morgan is a market maker and/or liquidity provider in the financial instruments of/related to Vestis,
Cintas, UniFirst.
Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Vestis, Cintas, UniFirst.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies)
as clients, and the services provided were non-investment-banking, securities-related: ARAMARK Uniform & Career Apparel LLC, a parent
company of Vestis, Cintas, UniFirst.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the
services provided were non-securities-related: Vestis, Cintas, UniFirst.
Non-Investment Banking Compensation Received: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from ARAMARK Uniform & Career Apparel LLC, a parent company of Vestis, Cintas, UniFirst.
Debt Position: J.P. Morgan may hold a position in the debt securities of Vestis, Cintas, UniFirst, if any.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium
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calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request.
50
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North America Equity Research
16 October 2023
JPMORGAN
Date
Rating
Price ($)
Price Target
($)
22-Dec-20
OW
346.13
378
17-Mar-21
OW
347.95
390
15-Jul-21
OW
378.95
430
23-Dec-21
OW
428.89
470
14-Jul-22
OW
377.57
445
28-Sep-22
OW
383.53
460
21-Dec-22
OW
443.94
510
13-Jul-23
OW
493.05
540
Date
Rating
Price ($)
Price Target
($)
06-Jan-21
N
210.85
230
30-Jun-21
N
241.68
245
20-Oct-21
N
215.72
223
06-Jan-22
N
196.02
200
31-Mar-22
UW
182.14
178
30-Jun-22
UW
163.49
155
16-Sep-22
UW
170.94
165
19-Oct-22
UW
171.95
155
04-Jan-23
UW
189.94
160
30-Mar-23
UW
173.02
155
28-Jun-23
UW
167.06
150
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average
total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this
stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight
[Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the
analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock
because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the
price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India)
and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country
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analyst’s coverage universe can be found on J.P. Morgan’s research website, https://www.jpmorganmarkets.com .
Coverage Universe: Steinerman, Andrew: Aramark (ARMK), Bright Horizons (BFAM), BrightView (BV), Cintas (CTAS), Dun & Bradstreet
(DNB), Equifax (EFX), First Advantage (FA), Iron Mountain (IRM), ManpowerGroup (MAN), Moody's (MCO), RGP (RGP), Robert Half
International (RHI), S&P Global (SPGI), Sterling Check (STER), Thomson Reuters (TRI), TransUnion (TRU), UniFirst (UNF), Verisk
Analytics (VRSK)
J.P. Morgan Equity Research Ratings Distribution, as of October 07, 2023
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IB clients**
JPMS Equity Research Coverage*
IB clients**
North America Equity Research
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Overweight
(buy)
47%
47%
46%
65%
Neutral
(hold)
39%
45%
41%
64%
JPMORGAN
Underweight
(sell)
14%
33%
13%
51%
*Please note that the percentages may not add to 100% because of rounding.
**Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided
investment banking services within the previous 12 months.
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54
Andrew C. Steinerman AC
(1-212) 622-2527
andrew.steinerman@jpmorgan.com
North America Equity Research
16 October 2023
JPMORGAN
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