Mantle Ridge, a New York-based investment fund, disclosed in a regulatory filing on Friday that it owns 9.8% of the company's common stock. The total economic interest is 20% including derivatives, according to Stifel, which increased its recommendation to buy from hold on the stock and its target price to $49 from $36 on the news.
"The involvement of an activist shareholder (Mantle Ridge announced a 20% interest in the company) changes the picture materially. We expect the activist to assume board-level representation, install a first-class management team, increase operational efficiency, improve incentives across the business, and focus on prudent use of capital," analyst Shlomo Rosenbaum said in a note Monday.
"We are establishing a $49 target price, basically assuming the stock's valuation gap to the leading market players (Compass on the food side and Cintas on the Uniform side) will narrow a bit. Evidence of sustainable improvements taking hold could generate further upside."
Rosenbaum also described it as a "welcome change to the picture given the stock performance, particularly since the analyst day at the end of 2018 where organic growth targets were lowered to 2%-4% from 3%-5%."
Shares of Aramark — which provides food and uniforms to organizations in the education, healthcare, business, sports and leisure sectors — have traded between a 52-week high of $43.70 on Sept. 26, 2018, and low $25.49 on May 7. The stock was up 9.54% to $40.64 on Monday.
The Mantle Ridge news comes after Reuters reported in late May that the firm, founded by former Pershing Square Capital Management LP partner Paul Hilal, was exploring raising financing to make an offer to buy Aramark. On Friday, Reuters reported that Mantle Ridge has dropped those plans.
In its regulatory filing, Mantle Ridge stated that it "intend(s) to have conversations, meetings and other communications with certain members of the Issuer's board of directors and management team, stockholders and other persons, in each case to discuss the Issuer's business, operations, strategies, governance, the composition of the executive suite and board and possibilities for changes thereto, as well as other matters related to the Issuer."
In a statement after markets closed on Friday, Aramark said it "is focused on maximizing long-term value for all of our shareholders, and welcomes open communication and constructive dialogue with our shareholders toward that goal."
Baird analyst Andrew Wittmann made Aramark its "new fresh pick" on Monday and raised his price target to $44 from $40. "However, without greater details on the plan forward and with the consensus view focused on an 'undervalued' uniform rental business potentially exaggerated, we keep our fundamental/long-term assessment/rating at Neutral," he said in a note.
Save 57% With Our Labor Day Sale. Join Jim Cramer's Action Alerts PLUS investment club to become a smarter investor! Click here to sign up!