Cintas (CTAS) Stock Holds Promise Despite Cost Headwinds
Cintas Corporation CTAS is exhibiting strong performance across all its segments. Robust demand in the health care, education and government verticals is driving revenues at the Uniform Rental and Facility Services segment (revenues rose 7.6% year over year in the first three months of fiscal 2024). High customer retention levels are boosting the First Aid and Safety Services segment’s performance. Revenues from the segment climbed 11.3% year over year in the first three months of fiscal 2024.
Cintas' focus on the enhancement of its product portfolio, along with investments in technology and existing facilities, should continue to drive its performance. The company’s focus on operational executions and pricing actions is helping it maintain healthy margin performance. For instance, in the first three months of fiscal 2024, the gross margin increased 120 basis points to 48.7% from the year-ago reported number.
Cintas’ commitment to reward shareholders through dividends and share buybacks is encouraging. In the first three months of fiscal 2024, dividend payments totaled $117.6 million, up approximately 20.4% year over year. The company repurchased shares worth $73.3 million in the same period. CTAS hiked its quarterly dividend by 17.4% to $1.35 per share in July 2023. The company has consistently raised its dividend for 40 straight years.
Cintas Corporation Price and Consensus
Cintas Corporation price-consensus-chart | Cintas Corporation Quote
However, Cintas has been dealing with the adverse impacts of high costs. In the first three months of fiscal 2024, its cost of sales (comprising costs related to uniform rental and facility services as well as others) rose 5.4% year over year to $1.2 billion due to higher material and labor costs. Selling and administrative expenses also climbed 9%, year over year, in the same period. Escalating costs, if left unchecked, may negatively impact profitability in the quarters ahead.
Given its wide international presence, Cintas is exposed to currency translation risks, which may affect its performance in the quarters ahead. A stronger U.S. dollar may depress the company's overseas business results in the quarters ahead.
Zacks Rank & Key Picks
Cintas presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the Industrial Products sector are as follows:
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A. O. Smith has an estimated earnings growth rate of 20.1% and 6.1% for 2023 and 2024, respectively. Shares of the company have gained 31% in the year-to-date period.
ITT ITT presently carries a Zacks Rank #2. The company pulled off a trailing four-quarter earnings surprise of 8%, on average.
ITT has an estimated earnings growth rate of 16.2% and 10.9% for 2023 and 2024, respectively. Shares of the company have gained 32.5% in the year-to-date period.
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