Aramark

ARMK Details
AMRK Opens Grocery Stores Amid Covid-19 Outbreak: Aramark (NYSE: ARMK) is a food delivery company that is engaged in helping premier educational institutions, world champion sports teams, healthcare providers, iconic destinations, and cultural attractions across the world. Recently, the company provided an update to continuously aid lead workers by opening on-site ‘pop-up’ grocery stores at healthcare facilities throughout the country. The move is intended to aid one-stop shop for doctors, nurses, and hospital staff to take supplies on their way home. Notably, the company has opened greater than 100 pop-up stores.
 
AMRK Unveils EverSafe™:In another update, the company stated that it introduced Aramark EverSafe™ to enhance the protection of everyone and support the safe reopening and sustainable management of client locations around the world. EverSafe is intended to empower employees, students, patients, and guests to be more confident and safer, wherever they work, learn, play, explore, recover, and regenerate.
 
Q2FY20 Operational Highlights for the Period ended 27 March 2020: ARMK declared its quarterly results, wherein the company reported revenue of $3.7 billion, down 6.7% on pcp. The company reported a 5.4% decline in its organic revenue, with underlying growth in the overall business, which was more than offset by uncertainty surrounding COVID-19 outbreak. FSS International reported a decrease of 4.1% in revenue due to COVID-19 outbreak, as Germany and Spain were affected due to government-imposed shutdowns. Adjusted operating income declined 30% year over year and came in at $164 million, primarily impacted by operations associated with COVID-19, which incorporates lower personnel costs and equity-based compensation expense. The company reported an adjusted net income of $64.9 million, down from $112.8 million in Q2FY19.
 

Key Highlights (Source: Company Reports)
 
Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)
 

EV/EBITDA based relative valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of ARMK closed at $32.25 with a market capitalization of $8.1 billion. The stock made a 52-week low and high of $9.65 and $47.22 and is currently trading at the upper band of the range. The stock has corrected 2.69% in the three-months but ran up 23.66% in the last one-month period. Considering the aforesaid facts, current trading levels, and recent price movements, we have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in% terms). For the purpose, we have taken the peer group - UniFirst Corp (NYSE: UNF), TransUnion (NYSE: TRU) and Equifax Inc (NYSE: EFX), to name few. Given the aforesaid facts, financial performance and recent update, we give a ‘Buy’ recommendation on the stock at the closing price of $32.25, up 5.88% as on 8 June 2020.


ARMK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 

Delta Air Lines, Inc.

 

DAL Details
 
A Look at DAL’s 1QFY20 Financial Results: Delta Air Lines, Inc. (NYSE: DAL) is engaged in offering scheduled air transportation for passengers and cargo across the United States and across the globe. During the quarter, the company reported a loss of 51 cents per share, which excluded 33 cents from non-recurring items, as compared to 96 cents per share reported in the prior corresponding period. Restrictions on free movement and passenger revenues, which represented around ~89.1% of the company’s revenues took a massive hit on its results. The company’s operating revenue declined 18% year over year and came in at $8,592 million. During the quarter, Cargo revenues dropped 20.8% on pcp. Total operating expenses stood at $9,002 million, down 5% year over year on the back of low fuel costs.
 

Key Highlights (Source: Company Reports)
 
CARES Update: The company received federal financial assistance of $2.7 billion under the Coronavirus Aid, Relief and Economic Security (CARES) Act. In exchange of the total payroll support of $5.4 billion, the U.S. Treasury will get warrants to buy in excess of 6.5 million shares of Delta’s common stock at $24.39 per share. The company has an alternative to apply for an additional $4.6 billion in secured loans to strengthen its financial position.
 
What to Expect:  The company burned $100 million in cash per day through March-end, owing to COVID-19 led outbreak and predicts to bring down the rate to $50 million per day by the end of the 2QFY20. Further, the company is likely to slash 85% of its total system capacity in the June quarter, whereas, it expects to trim ~90% of its international capacity and slash 80% on the domestic front.
 
Valuation Methodology: Price to Book Based Relative Valuation (Illustrative)
 
Price to Earnings based relative valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of DAL closed at $36.97 with a market capitalization of $23.58 billion. The stock made a 52-week low and high of $17.51 and $63.44 and is currently trading at the lower band of the range. The stock has corrected 19.44% in the three-months but ran up 62.72% in the last one-month period.  The company remains focused to invest higher in reliability and disaster recovery with the successful stand-up of new data center. It also focuses on shift to digital transformation, thereby strengthening brand and revenue premium. Considering the aforesaid facts, current trading levels, and recent price movements, we have valued the stock using price to book value multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in% terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $36.97, up 8.23% as on 8 June 2020. 
 

DAL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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