Vestis Corp (VSTS) Buy $20
3-5 Years, Target $40 to $45. Annual Gain – 18 to 20%
GARP (Growth at A Reasonable Price)
Vestis (NYSE: VSTS) is a uniform and workplace supplies provider that’s just been carved out of Aramark (ARMK). A competitor to the very successful Cintas (CTAS), now just likely to start hitting the gas. Cintas, priced around $50 on December 13th, 2013, closed at $600 at year-end, 2023 – a twelve-bagger in 10 years! That’s an annual growth of more than 28%! I believe Vestis can emulate Cintas’ story.
These are the main reasons to buy Vestis:
1. Sustainable long-term revenues and income from long-term contracts with 93% of clients renewing each year.
2. Scale – It is the second largest provider in the rental uniforms and industrial supplies market after the $6.9Bn Cintas. Scale matters, making it a barrier to entry for smaller players unable to serve multiple locations. Operational efficiency is the reason for Cintas’ dominance – smaller players can’t do it at the same price as Cintas and Vestis, and it is far more expensive for industrial customers, local government authorities, franchises, hospitals, and restaurants to do it by themselves.
3. Fragmented market – the opportunity is tremendous, the big three players control only 25%, and it being the second largest player there is plenty of room to increase market share.
4. Cross Selling – increasing revenue per customer. Management believes that only 30-40% of Vestis’ product line is being sold and there is ample room for improvement, especially for workspace supplies.
5. Leverage Delivery agents to increase sales – continue leveraging the front line by making salespeople of its delivery agents. Currently, Vestis’ delivery agents sell on 96% of routes. These are valuable assets and will be leveraged more.
Even if Vestis emulates most of Cintas’ story we have a solid winner on our hands.
