UniFirst: Leveraging ERP, CRM, and Growth Prospects
UniFirst Corporation (NYSE: UNF) has gained significant investor attention due to its recent implementation of ERP and CRM systems. Analysts have raised their quarterly EPS expectations, anticipating net income growth driven by increased efficiency from process automation. A 5-year dividend growth rate of approximately 24%-25% and recent stock buybacks could further stimulate demand for the stock.
Business Segments and Clientele
UniFirst offers an array of cleaning services including uniforms, particularly those exposed to radiation. It designs and manufactures anti-flammable protective clothing and uniforms for laboratories. The company also provides industry cleaning supplies and maintains bathrooms and food areas. Safety training is offered to customers.
UniFirst serves over 300,000 active clients through 270 service locations. Its main activity involves providing clients with clothing and accessories, collecting used items for cleaning and reuse, and manufacturing 60% of distributed garments in its own facilities in Mexico and Nicaragua.
Financial Performance and Outlook
In the recent quarterly report, UniFirst reported significant growth compared to the previous year, with revenue up 8.9% and operating income up 34%. CFO increased to $106.7 million, a 66.3% increase over the same period in 2023.
For 2024, UniFirst projects revenue between $2.415 billion and $2.425 billion. Four analysts have increased EPS projections for the next quarter, with consensus estimates for 2024 and Q1 2025 reflecting EPS increases.
Balance Sheet
UniFirst reported a strong balance sheet as of February 24, 2024, with $90 million in cash, $241 million in rental merchandise in service, and $291 million in accounts receivable. The current ratio stands at 3x, indicating substantial liquidity. The asset/liability ratio is approximately 4x.
Growth Assumptions
1.
Market Growth:
According to experts, the workwear and uniforms market is expected to grow by 4.6% CAGR from 2022 to 2030, potentially driving UniFirst’s net sales growth.2.
ERP and CRM Benefits:
UniFirst’s recent investments in ERP and CRM systems are projected to improve efficiency and increase net margins in the coming years.3.
Inorganic Growth:
The company’s strategy includes acquisitions and expansions, aiming to capture economies of scale and enhance margins.4.
Stock Repurchase:
UniFirst’s stock repurchase program could reduce the WACC and enhance stock valuation, attracting new investors.Valuation Analysis
Under our best-case scenario, assuming our assumptions hold true, the company may see net sales growth and margin increases. Using conservative estimates, our dividend model suggests a valuation of $287 per share.
Under our worst-case scenario, considering assumptions fail, the implied price would be $111.7 per share.
Risks and Conclusion
UniFirst faces competition in the uniform rental market, primarily from large national companies. Economic downturns could impact demand for its services. Potential increases in transportation costs and supply chain disruptions pose additional risks.
UniFirst’s ERP and CRM implementation, strong balance sheet, and growth prospects make it an attractive investment opportunity. However, investors should consider the risks associated with labor law changes, economic fluctuations, and reduced demand. Our analysis suggests that UniFirst is currently undervalued.
