Vestis a buy.

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 Barron's says

Buy Shares of this Newly Public Company. The Stock Could More Than Double Over the Years.

Vestis was just spun out from Aramark, and now looks poised to compete with industry leader Cintas.


Newly public uniform-rental company Vestis 

VSTS


1.43%

 has a pitch to investors: We’re about more than just dirty laundry.


Vestis (ticker: VSTS) was spun out from Aramark 

ARMK


-1.23%

 (ARMK) in early October, allowing the parent company to focus on the food-services business. Its Aramark Uniform Services segment became the independent Vestis—with its own management team and pitch to investors. So far, Vestis stock has fallen 13%, to $16.79, since the start of trading on Oct. 2, while Aramark has gained 13%.


Still, there’s a lot to like about Vestis, starting with its uniform-rental business. Some jobs require protective or technical apparel, while standardized uniforms convey a consistent brand image to customer-facing roles. Laundering and maintaining a wardrobe for an entire workforce can be a pain for companies large and small in all industries. Outsourcing that service to a provider like Vestis can reduce complexity and cost.


For Vestis, the business brings recurring revenue, economies of scale, and ample room for growth. The company’s trucks visit each of its 300,000 customer locations every week, dropping off five clean uniforms per employee and picking up five dirty ones. Those are brought back to one of its 350 facilities to be inspected, laundered, and repaired or replaced if necessary. Some 92% of the Aramark unit’s revenue in fiscal 2022, which ended last September, was recurring under long contracts with customers, and 93% of clients renew.



That business can get better. As an overlooked division of Aramark, No. 2 player Vestis wasn’t able to compete against industry leader Cintas 

CTAS


0.05%

 (CTAS) or No. 3 player UniFirst 

UNF


-0.13%

 (UNF), lagging both in growth and profit margins. Greater success as an independent company will come from adding new customers and expanding business with existing ones, a path already laid out by Cintas, which has become a $53 billion behemoth. Shares have risen 25% a year for a decade.


“The opportunity is tremendous,” says Vestis CEO Kim Scott. “We’re operating in a highly fragmented market, with the big three players controlling only [25%]…and there’s a lot we can do as we gain density and scale.”


Vestis isn’t starting from scratch. More than half of its revenue comes from supplying aprons, floor mats, towels and linens, cleaning products, restroom supplies, first-aid kits, and other workplace goods—products that are less tied to employee head count than uniforms and provide opportunities for cross-selling.

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