Compass Group's accelerating top-line results, reported Wednesday, are a positive sign but we remain cautious in our outlook for the firm's shares. We are sticking with our 470p fair value estimate primarily because we've seen little evidence of a pick-up in corporate hiring, which is a key driver for new client contracts for Compass, as well as increasing like-for-like volume growth. Total sales at the firm increased 5.5% compared to the same period last year, with positive organic revenue growth across all regions. Sales growth in developing markets increased 10.4% year-over-year, while in North America revenues were up 7.6%. Both Europe and the UK/Ireland delivered low-single-digit sales increases. Fiscal year to date Compass is tracking to 2.0% organic sales growth, and management raised its guidance to 2.5% sales growth for the year. At this point last year, however, fiscal year to date organic sales growth was only 0.8%, so clearly lapping a weak base period is helping results. We will incorporate management's new guidance into our model but significant economic uncertainty remains in the firm's markets, providing a counter balance to the firm's slightly more optimistic outlook, in our view.
Lauren DeSanto is chief operating officer of equity research at Morningstar.
