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Cintas Corporation (CTAS)
Cintas
does more than just rental work
uniforms. Over the years, they have
evolved into many diverse segments from document management to fire
protection. Even with this variety, just
about all of their businesses are dependent on a strong consumer and
healthy
economy.
Because
Cintas has contracts with
many large industrial and commercial companies and runs a diversified
corporation,
they can not only weather more storms than their competition, but also
offer customers
a gamut of services at a good price to improve retention.
If you
are a believer in the American
consumer and economic recovery then Cintas may be a stock to
watch.
It has been building solid momentum over the
past several months and recently reported a blow-out quarter which sent
shares
soaring.
Company
Description & Developments
Cintas provides highly specialized services to businesses of all types
throughout
North America. It is the largest company in the space and services more
than
900,000 businesses. Founded in 1983,
Cintas has become the go-to for everything from the design, manufacture
and
implementation of corporate identity uniform programs to entrance mats,
restroom supplies, promotional products, document management and even
fire
protection, first aid and safety services.
They have over 430 facilities in the US and Canada that employ
over 30,000
people. The rental division is still the
company’s largest but is just a part of their overall pie.
You will find Cintas’ floor mats, first aid kits,
fire alarms and suppression systems, hand soaps and air fresheners in
many
large and mid-size companies across the US.
They may not be a visible to the general public, but to their
customers,
they offer invaluable service and a positive corporate culture that
propels their
success.
For all you “green” folks out there, Cintas is making the
first transition
in the industry to a phosphate-free and EDTA-free biodegradable
solution for
the laundering of their uniforms. Washing Systems LLC is the supplier
of these
new sustainable laundry products and is their partner in this new
venture.
Financial Profile
CTAS is a mid-cap (5.01 billion) company that is trading at about 17
times forward
(expectations for next quarter) earnings. CTAS became a Zacks
Rank 1 strong
buy on December 23rd, 2011 after their strong results on December
20th.
The
services company reported a
quarterly sales increase of 1% at their last earnings report, but saw a
10%
rise in EPS for the same period. Annual sales were up 9%
compared to (fiscal)
Q22011 with total sales of roughly 3.8 billion in FY2011.
CTAS earnings jumped
from a $1.40 to $1.69 profit from FY2010 to FY2011. CTAS is
expected to earn $2.19 in FY2012
according to the Zacks Consensus Estimate.
Earnings Estimates
Cintas reported strong earnings last quarter that beat estimates by
19%.
On the
call, Cintas noted record revenue and saw a 50% jump in EPS year over
year. They also saw margins increase
throughout several of their business. Cintas has surprised analysts to
the upside
for the past 4 quarters in a row an average of 13.66%.
Expectations
are for CTAS to
generate $0.52 in income this quarter when they report on March 20th. Of the 12 analysts who
cover CTAS,
the consensus is for the company to grow earnings by 30% in the current
year
(FY2012) and roughly 11% in FY2013.
In terms of the magnitude of analyst estimate trends, we are
seeing all of
the consensus estimates higher than they were 90 days ago for the
current and
next quarters as well as FY2012 and FY2013. It was interesting to note that the CEO was cautious in their
September
report. Once he realized that they were
able to deliver such strong results in the December report, Cintas
upped their guidance
for the entire year which pushed their stock even higher.
He was confident that even in challenging times Cintas would
be able to
deliver. If the economy is indeed
improving, results should be even better.
Market Performance &
Technicals
CTAS struggled a bit in the last half of 2011 and fell almost 27% from
the July
highs to its lows in October. Late
November was key for the stock as it broke above the 50 day moving
average and
began to pick up steam.
After
the last report, the stock was
propelled above both moving averages and has continued to rise in the
past
couple weeks. CTAS is now firmly above
its 50 and 200 day moving averages of $35.73 and $31.92
respectively.
The recent consolidation has developed some
support at the $37.00 level as well.
Below that look at $34.45 as a major level aside from the moving
averages.
CTAS
has exceeded the S&P 500’s
performance by 31% in the past year and over 18% in the past 3
months.
Given its recent consolidation in the past
couple weeks, Cintas is lagging the index by about 2%. The
good news is that consolidation is when a stock will generally build a
foundation. The stock is also relatively
cheap which will benefit it if the market takes another leg
up.
If consumer strength continues to improve,
look for CTAS stock to follow suit.
Jared
A Levy is the
Momentum Stock Strategist for Zacks.com. He is also the Editor in
charge of the
market-beating Zacks
Whisper Trader Service.
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