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Product Development and Buyouts Bode Well for Cintas (CTAS)

Zacks Equity Research

Cintas Corporation CTAS currently seems to be a smart choice for investors seeking exposure in the uniform related space. Solid fundamentals and positive revision in earnings estimates are reflective of healthy growth potential of the stock.

The  Cincinnati, OH-based company currently carries a Zacks Rank #2 (Buy). It belongs to the Zacks Uniform and Related industry, which belongs to the broader Zacks Industrial Products sector.

The industry is currently placed in the top 4% (with Zacks Industry Rank #11) of more than 250 Zacks industries. Notably, the top 50% of the Zacks-ranked industries tend to outperform the bottom 50% by a factor of more than 2 to 1.

Below we discussed why investing in Cintas will be a smart choice.

Share Price Performance, Earnings Projections: Market sentiments seem to be working in favor of the company over time. Over the past six months, the company’s shares have yielded 31.9% return compared with 31.5% growth recorded by the industry and 7.2% decline by the sector.


 

We believe that impressive financial results helped in driving sentiments for the stock. The company beat earnings estimates in the last four quarters, the average surprise being 6.27%. Notably, earnings surprise was 6.7% in the last reported quarter.

For fiscal 2020 (ending May 2020), the company anticipates earnings per share of $8.30-$8.45, whereas it reported $7.60 in fiscal 2019 (ended May 2019).

Further, its earnings estimates have been raised in the past 60 days. The Zacks Consensus Estimate for the company’s earnings is pegged at $8.45 for fiscal 2020 and $9.41 for fiscal 2021 (ending May 2021), reflecting 1.8% and 2.4% growth from the respective 60-day-ago figures.

Cintas Corporation Price and Consensus

 

Cintas Corporation Price and Consensus

Cintas Corporation price-consensus-chart | Cintas Corporation Quote

Top-Line Strength: Cintas anticipates gaining from investment in technology, focus on the enhancement of product portfolio, acquired assets and solid customer base in the quarters ahead. Further, its operations in the international arena add to top-line growth. For fiscal 2020, the company anticipates revenues of $7.24-$7.31 billion, whereas it recorded $6.9 billion in fiscal 2019.

The Zacks Consensus Estimate for Cintas’ revenues is pegged at $7.3 billion for fiscal 2020 and $7.7 billion for fiscal 2021, suggesting year-over-year growth of 5.8% and 5.9%, respectively.

Buyouts: Over time, the company fortified the product portfolio and leveraged business opportunities through the addition of assets. In fiscal 2019, it acquired assets worth approximately $9.8 million (net of cash acquired).

Of its many acquired assets, the buyout of rival G&K Services Inc. in March 2017 is worth mentioning. The buyout has been expanding Cintas’ customer profile, strengthened product portfolio and processing capacity, and improved its customer service. It is worth mentioning that the integration of G&K Services into Cintas’ Uniform Rental and Facility Services segment is going well.
 
Shareholder-Friendly Policies: The company uses capital for rewarding shareholders handsomely. In fiscal 2019, it repurchased common stock worth $1,016.3 million and paid out an annual cash dividend of approximately $220.8 million.

Notably, the company raised its annual dividend rate by 26.5% to $2.05 in October 2018. For fiscal 2020, it expects to continue generating strong cash flow. This will help the company to reward its shareholders.

Other Key Picks

Some other top-ranked stocks in the sector are Unifirst Corporation UNF, Graham Corporation GHM and DXP Enterprises, Inc. DXPE. While Unifirst currently sports a Zacks Rank #1 (Strong Buy), Graham and DXP Enterprises carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, earnings surprise for the last reported quarter was 44.71% for Unifirst, 100% for Graham and 4.29% for DXP Enterprises.

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Cintas Corporation (CTAS) : Free Stock Analysis Report
 
Unifirst Corporation (UNF) : Free Stock Analysis Report
 
DXP Enterprises, Inc. (DXPE) : Free Stock Analysis Report
 
Graham Corporation (GHM) : Free Stock Analysis Report
 
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