Will Cintas (CTAS) Disappoint this Earnings Season?


Business services provider Cintas Corporation (CTAS) is scheduled to report its fourth-quarter fiscal 2014 results after the closing bell on Jul 15. In the last reported quarter, Cintas marginally missed the Zacks Consensus Estimate by 1.43%. Let’s see how things are shaping up for this announcement.

Factors to Consider

Cintas continues to deliver organic growth through superior execution of its operational plans. The company witnessed top-line growth across all the segments except Uniform Direct Sales in the last reported quarter and expects to continue this in the coming quarters as well.

Cintas’ expansion through higher penetration levels and broadening of customer base including business segments that are not historically served, augur well for its growth prospects. During the recession, Cintas had undertaken initiatives to enhance its operations by evaluating sales force productivity, optimizing routes and streamlining labor overhead. The company returned to year-over-year rental organic revenue growth in mid-2010 and has continued on the growth trajectory since then.

However, an increase in raw material costs and challenging macroeconomic conditions could weigh on the margins going forward. A continuous increase in raw material costs such as cotton, due to global headwinds, may weigh on the margins going forward. Cintas procures raw materials from a wide variety of domestic and international suppliers, making it susceptible to market risks, which are beyond its control.

Earnings Whispers

A solitary earnings estimate revision for the soon-to-be-reported quarter and fiscal has moved down in the last 7 days without any upward revision. However, the Zacks Consensus Estimate for the fourth quarter as well as for fiscal 2014 has remained unchanged over the same time frame.

Despite the downtrend, our proven model does not conclusively show that Cintas is likely to miss earnings this quarter as it retains a mixed bag of key ingredients required for a success recipe.

Negative Earnings ESP: Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at -1.33%. This indicates a likely miss in earnings.

Zacks Rank #3 (Hold): Cintas’ Zacks Rank #3 when combined with -1.33% ESP makes surprise prediction difficult. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.  

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat in the future.

Arch Capital Group Ltd. (ACGL), earnings ESP of +6.32% and Zacks Rank #1 (Strong Buy).

ConocoPhillips (COP), earnings ESP of +6.96% and Zacks Rank #1.

Clayton Williams Energy, Inc. (CWEI), earnings ESP of +4.97% and Zacks Rank #1.

Read the Full Research Report on COP
Read the Full Research Report on CTAS
Read the Full Research Report on CWEI
Read the Full Research Report on ACGL

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