Leading business service provider Cintas Corporation CTAS is scheduled to report its second-quarter fiscal 2016 results after the closing bell on Dec 21. In the last reported quarter, Cintas’ earnings exceeded the Zacks Consensus Estimate by 3 cents. Let’s see how things are shaping up for this announcement.
Key Factors in the Second Quarter
During the soon-to-be-reported quarter, Cintas completed the sale of its investment in Shred-it International Inc. The company received $578 million in proceeds from the divesture. In addition, Cintas is likely to receive up to $34 million in additional consideration in the future, subject to certain holdback provisions. The transaction will be reflected in the impending quarterly results. The divestiture is expected to rationalize operations and reap synergistic benefits in the long run.
With a continued improvement in the pricing environment and higher operational efficiency, Cintas is expected to achieve broad-based revenue growth in the quarter. Cintas aims to continually achieve revenue buildup by increasing penetration levels at existing customers and broadening the customer base to include business segments that are not historically served. The company is also expected to capitalize on the growth prospects in the rental first aid and direct sale businesses. Leveraging its well-equipped infrastructure resources, Cintas aims to capitalize on its scale advantages to augment its competitiveness. Also, a more favorable pricing scenario and cost streamlining initiatives are expected to drive incremental margins.
In addition, Cintas has a strong balance sheet with adequate liquidity to meet its working capital requirements. The company also generates strong operating cash flow, which helps maintain its cash reserves. The company has consistently returned cash to shareholders through stable dividend payouts and share repurchases. In addition, Cintas has easy access to commercial paper and long-term debt markets on favorable interest rate and other terms, which has historically provided it with rich sources of liquidity.
Earnings Whispers
Despite some solid fundamentals, our proven model does not conclusively show that Cintas is likely to beat earnings this quarter as it does not possess the key ingredients for a success recipe.
Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%.
Zacks Rank: Cintas’ Zacks Rank #4 (Sell) when combined with a 0.00% ESP reduces the predictive power of ESP. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 (Hold) coupled with a positive ESP have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
ConAgra Foods, Inc. CAG, earnings ESP of +5.09% and Zacks Rank #2.
Carnival Corporation CCL, earnings ESP of +12.20% and Zacks Rank #3.
Darden Restaurants, Inc. DRI, earnings ESP of +4.76% and Zacks Rank #3.
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