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Cintas (CTAS) Displays Bright Prospects Despite Challenges

·3 min read

Cintas Corporation CTAS is poised to benefit from strength across its healthcare and education end markets, driven by strong product demand.

Strength across the company’s first-aid cabinet service, uniform direct sale and fire protection services businesses is likely to drive its performance in the quarters ahead. Also, its focus on product portfolio enhancement, and investments in technology and existing facilities are likely to be advantageous.

For the fourth quarter of fiscal 2022 (ending May 2022), Cintas expects revenues of $1.96-$2.02 billion.

The company’s focus on operational execution, cost-control measures and pricing actions might help it maintain a healthy margin performance in the quarters ahead. For instance, in the third quarter of fiscal 22 (ended February 2022), its adjusted operating margin expanded 90 basis points on a year-over-year basis.

Cintas remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. In the first nine months of fiscal 2022, the company used $276.9 million for paying out dividends and repurchasing shares worth $1,221.8 million. In July 2021, it hiked its quarterly dividend rate by 26.7% and approved a share buyback program worth $1.5 billion.

However, the company has been dealing with escalating costs and expenses. In third-quarter fiscal 2022, its cost of sales increased 9.8% year over year, whereas selling and administrative expenses rose 1.6%. Escalating costs and expenses, if not checked, might adversely impact its short-term profitability in the quarters ahead.

High tax rates are predicted to lower Cintas’ earnings in fourth-quarter fiscal 2022. The company predicts a 23.2% tax rate for the fiscal fourth quarter, suggesting a rise from 19.4% recorded in the year-ago quarter. The high rate is predicted to lower earnings per share by 14 cents and earnings growth by 560 bps.

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In the past three months, this Zacks Rank #3 (Hold) stock has returned 4.4% compared with the industry’s growth of 3.4%.

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You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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