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Buy Aramark (ARMK) for Its Solid Earnings

Given the situation in the market right now, finding something that’s going to be a bit more defensive might make sense. I set out to find a stock we could look at that is an industry that is non-cyclical and could hold up through tough time. I’m not saying the economy is suddenly going to head south. I’m just saying it would be nice to find an old-school company with some solid earnings we can sink our teeth into.

Aramark-ARMK-stockAramark (ARMK) is a $14 billion global provider of award winning services in food, facilities management and uniforms. If Aramark’s fourth quarter goes anything like Q3 2014 was, investors are in for some good news. Q3 saw sales of $3.6 billion with organic growth of 4%. Adjusted operating income was up 10% to $192.4 million while operating income came in at $141.3 million.

This amounted to earnings-per-share of 19 cents with year-to-date sales topping $10.9 billion, which caused the company to raise its full year guidance to a range of $1.45 to $1.50. President and CEO Eric J. Floss stated,

“I am pleased to report another quarter of strong business results achieved within a challenging consumer and economic environment. Our performance reflects solid execution against a sound strategy and was broad-based across the segments and geographies of our portfolio. Based upon this strength and our overall business momentum, we are increasing our full-year 2014 earnings outlook.”

These bullish comments from the CEO definitely influenced analysts covering the stock. Two analysts revised their current year estimates up from $1.27 to $1.33 and next year up from $1.38 to $1.47. Add this to the three upside earnings surprises in a row and you see why Aramark is currently a “Zacks Rank #1 (strong buy).”

The market has made it pretty hard to find a chart worthy of a buy recommendation. Major support levels have been tested and ruthlessly violated on this sharp downturn we saw yesterday, but Aramark stock is a different story. Since going public at the end of December 2013, Aramark has bounced between $22.50 and $30.

The top of this range proved to be a little too rich for investors as that level was hit twice in March only to see Aramark stock reverse and come back down for find a new bottom of the range at $25 in June. Since then, the Aramark price range has tightened even more, with most of the price action happening between that level and $28.

The pullback over the last few days saw Aramark down from the high $27s to the $26.60 level it closed at Thursday, but there is some good news regarding the pullback, Aramark is still trading above the 40-day moving average. Even though the average has a neutral to negative slope right now, trading above it gives ARMK stock an overall bullish bias. Investors looking to get long should park their stops on the shy side of August’s $25.62 low.

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