Welcome back to another episode of Pitch The PM. In this episode, Doug Garber flips roles and steps in as the analyst pitching Vestis Corporation (VSTS)—a recent spin-out, route-based industrial with a new CEO taking the helm after missteps from the initial CEO. Former SAC PM Hugh Anderson plays the part of portfolio manager, dissecting the thesis and poking holes in the evidence. Together they examine whether the business is broken or simply sandbagged, if re-aligning the sales force incentives by limiting credits can drive margin recovery, and whether new CEO Jim Barber (former UPS COO) can execute a Cintas-style transformation. With short interest high and expectations low, is this a compelling special situation or a value trap?

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Get Doug’s version of the Earnings Preview Checklist: https://pitchthepm.beehiiv.com/p/vsts-sanbagged-guide-new-ceo-s-turnaround-plan-could-be-a-catalyst-high-short-interest

Chapters:

[00:00:00] What ACTION do I want the Portfolio Manager to take?

Doug owns VSTS ahead of what he believes is an underappreciated Q3 setup, driven by sandbagged guidance, a new CEO presenting a turnaround plan. He is bias, so do your own research.

[00:03:40] Do I UNDERSTAND this business?

Doug draws on his industrial’s experience from Citadel and Millennium, and lays out VSTS’s core model—route-based delivery of uniforms and business supplies—and how its execution compares to peers like Cintas and UniFirst.

[00:10:50] Is the stock available at a REASONABLE price today?

VSTS trades at ~8x EV/EBITDA vs. Cintas at 29x. Doug argues valuation is fair for a fixer-upper and notes that upside lies in earnings revisions, not rerating.

[00:12:55] Why is this stock MIS-PRICED?

Street views VSTS as broken due to management stumbles, two major guidance cuts, and high leverage. Doug sees it as a speed bump, not a structural issue.

[00:14:50] What is the VARIANT VIEW vs the street?

Doug believes recent underperformance and sandbagging have lowered the bar, setting up a potential beat. The April run-rate already matched December’s, suggesting Q3 upside.

[00:18:00] What is the EVIDENCE?

The last conference call lays out the rebound in sales back to December levels in April. Plus, the excessive narrative on credits helps explain the high decremental margins during the recent shortfall.

[00:25:00] What are the CATALYSTS for the street to realize my view?

A Q3 beat followed by a Q4 guide above consensus could lead to higher earnings revisions and thus a higher stock price. Plus, the CEO’s turnaround plan could be positive. And there is high-short interest.

[00:34:00] What is it WORTH if the bet is right?

With steady growth, the multiple discount vs peers could narrow too. Re-rating to peer levels (0.8x–1.3x EV/revenue) from 0.3x could also happen as profitability improves.

[00:40:00] What is the OTHER SIDE of the bet?

Management may invest heavily, hurting near-term FCF. Credit covenants may linger. CEO could have a conservative stance out of the gate on the 4Q guide.

[00:45:00] Is management ALIGNED with ownership?

Jim Barber’s equity was granted post last quarter’s miss, guide pull, and dividend cut. He has a good starting point.

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Not Investment Advice. Doug owns VSTS and is biased.