Cintas Corp. (CTAS)
from Wall Street Stock Forecaster
Cintas Corp. (CTAS) provides a range of products and services to over one million businesses, mainly in North America, and it just increased its share buyback plan by $500 million and analysts’ earnings estimates have risen by 15 cents in the past 90 days. Cintas Corp. Stock is looking good.
The company gets 71% of its revenue by renting uniforms that it makes and cleans. This business also rents a variety of related products, such as mats, towels, mops and cleaning supplies. Cintas gets a further 10% of its revenue by selling uniforms.
In addition, Cintas sells first aid kits, fire extinguishers, sprinklers and emergency-exit lights (11%). It also shreds corporate documents (8%). In April 2014, it merged its shredding operations with Shred-it International. In exchange, Cintas received 42% of the combined company, which uses the Shred-it brand, plus $180 million in cash.
Following the recession, Cintas’s revenue gained 28.3%, from $3.5 billion in 2010 to $4.6 billion in 2014 (fiscal years end May 31). Earnings rose 63.8%, from $228.6 million to $374.4 million. Per-share earnings jumped 87.2%, from $1.49 to $2.79, on fewer shares outstanding.
Cintas operates in highly fragmented markets with many smaller competitors. That gives it plenty of opportunities to make acquisitions and add clients. In fiscal 2014, it spent $33.4 million buying smaller firms outside of its main uniform-rental business.
Meanwhile, the company continues to simplify its operations, mainly by selling less important businesses. For example, in November 2014 it sold its remaining document storage and imaging operations for $180.0 million.
Cintas is in a strong position to keep expanding. Its long-term debt of $1.3 billion is a low 14% of its market cap, and it holds cash of $826.7 million, or $7.05 a share. Due to its string of acquisitions, its goodwill now totals $1.2 billion. But Cintas cuts the risk of a large write-down by focusing on smaller companies it can easily absorb.
The company also aims to buy back more shares. In January 2015, it increased its share repurchase authorization by $500 million. It can now buy back up to $737.5 million worth of shares, which is equal to 8% of its market cap.
The company’s earnings will probably jump 25.8% to $3.51 a share in fiscal 2015. The stock trades at 22.2 times that forecast. That’s a high multiple, but it’s still acceptable in light of Cintas’s strong earnings outlook and well-established reputation. Moreover, lower oil prices will cut its fuel costs. Its non-union workforce also helps keep its labor costs down.
Cintas is a buy.
Patrick McKeough, Wall Street Stock Forecaster, www.tsinetwork.ca, 888-292-0296, February 2015
Editor’s Note: I interviewed and recommended this company more than a decade ago. A funny fact—Cintas was started by a circus performer during the Depression, a time when few could afford to go to the circus. He picked up rags in the alleyways that had been discarded by machine shops, laundered them, and then sold them back to the shops. From a very modest beginning to a $9.58B market cap, this company has an impressive track record.