Barrington Initiates Superior Uniform Group At Outperform, Expects Organic Growth To Remain Strong

The brokerage noted that the stock overreacted negatively to second-quarter results on July 21, thus presenting a buying opportunity.

In the second quarter, the company's organic growth flattened due to orders being pulled forward to first quarter, while EPS was impacted by growth-related spending. But, management expressed its confidence in the long-term outlook by buying shares in the open market following its recent weakness.

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"We believe Superior's direct sale uniform business is distinguished by an end-to-end solution that encompasses state-of-the-art design, manufacturing, distribution, and service enabling customers to provide their employees with high-quality, branded work apparel in a reliable and cost-effective manner," analyst Kevin Steinke wrote in a note.

Superior is expected to pursue acquisitions with high growth potential. "On March 1, 2016, the company acquired BAMKO to further build its promotional products business, which is a logical extension of the core uniform offering since customers desire a 'one-stop shop' for their branded product needs."

Excluding BAMKO, the company sees average organic sales growth over 8 percent annually, consisting of growth in excess of 6 percent in the uniform/related products segment (94 percent of sales). BAMKO (13 percent of pro forma 2015 sales) Is expected to grow 15 percent-plus organically.

"We expect EPS growth to outpace sales growth over the next several years, driven by margin expansion," Steinke continued.

The analyst expects EPS of $0.90 for 2016 and $1.15 for 2017.

The $21 price target represents a potential upside of 27 percent over Monday's close of $16.49 and assumes a NTM P/E multiple of 17x and an EV/NTM EBITDA multiple of 10x one year from now.

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