We have increased our fair value estimate for Compass Group (CPG) to 720p per share from 710p on the back of the foodservice company’s better-than-expected earnings acceleration. With the shares currently trading around 840p apiece, however, the stock looks moderately overvalued, hence its 2-Star Morningstar rating.
"Over the near term, we continue to expect soft revenues in the European segment due to a sluggish economic environment," says Morningstar analyst Barbara Noverini.
Compass' core corporate cafeteria business has developed the company into one of the largest and most entrenched players within the foodservice industry. The company's extensive global footprint serves a diversified mix of sectors and geographies, providing the foundation for a narrow economic moat—sustainable competitive advantage—that produces steady revenue streams and strong cash flows.
Noverini forecasts growth rates for Compass’ North America business to land in the mid-single digits, as the company expands and becomes more successful at selling add-on facility services to existing customers. In fast-growing and emerging markets, Noverini sees Compass sustaining an average CAGR (compound annual growth rate) above 10% for the next five years.
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