We first recommended this firm in the October 2005 issue of Wall Street Stock Forecaster as a buy for aggressive investors. We felt the company’s dominance in the niche uniform rentals business gave it reliable revenues and cash flows. Its ability to sell other products and services to its clients, such as floor mats and cleaning supplies, also enhanced its appeal.
The stock has not disappointed. Despite dropping nearly 50% in 2020 when COVID-19 shutdowns hurt its hotel and airline customers, it quickly shot up to record highs in 2021. In fact, the company is now close to the record highs again, and the stock is now up 982.6% from the $41 it was trading at when we first added it to our coverage.
We feel the firm has many more years of growth ahead, particularly as it serves just 1 million of the 16 million businesses in North America. The pandemic has also prompted more of its clients to buy its cleaning supplies and services.
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CINTAS CORP. (Nasdaq symbol CTAS; www.cintas.com) designs and makes uniforms, then sells them to businesses, mainly in North America. It also offers related products and services such as office-cleaning and first-aid kits.
The firm gets 79% of its revenue from renting uniforms, which it makes and cleans at its own factories, and from renting a wide variety of related products, such as floor mats, towels, mops and cleaning supplies.
It gets a further 11% of its revenue by providing first-aid kits, as well as safety equipment, such as eyewash stations, and personal protective gear like goggles and face masks.
The remaining 10% comes from selling uniforms to businesses, and providing fire extinguishers, sprinklers and emergency-exit lights. In addition, Cintas helps its clients comply with local safety regulations.
Businesses that provide services, such as hotels, restaurants, airlines and hospitals, account for 70% of Cintas’s revenue. Manufacturing businesses and construction firms supply the other 30%.
In all, the company has 460 operating facilities, 13 distribution centres and over 11,000 local delivery routes. Its operations in the U.S. contribute over 90% of its revenue.
Growth Stocks: Revenue and earnings rises beat consensus estimates
Cintas continues to benefit as more businesses, particularly airlines and hotels, re-open. The company is also selling more services to its existing clients.
Meanwhile, the company recently shifted its various computer systems to a single platform. That will give it better control over inventories and speed up the collection of payments from its clients. Better knowledge of trends in local markets will also help Cintas adjust its prices to win new contracts and secure renewals.
The company is also using sensors on its trucks to monitor their delivery times. By analyzing that data, through a system it calls Smart Truck, it can create more-efficient routes and reduce fuel costs. The system also frees up time that drivers can spend with clients, which helps them better respond to their individual needs and improve retention rates.
In its fiscal 2023 first quarter, ended August 31, 2022, Cintas’s revenue rose 14.2%, to $2.17 billion from $1.90 billion a year earlier. That beat the consensus forecast of $2.08 billion.
The company’s overall earnings in the quarter improved 6.2%, to $351.7 million from $331.2 million. Due to fewer shares outstanding, per-share earnings gained 9.0%, to $3.39 a share from $3.11. That also beat the consensus estimate of $3.13 a share.
Cintas now expects to earn between $12.30 and $12.65 a share in fiscal 2023. That’s up from its earlier prediction of $11.90 to $12.30 a share. The stock trades at 35.6 times the midpoint of that new range. That’s a high p/e, but still acceptable given the company’s leading position in its niche market and its improving profitability.
Another plus for investors is Cintas’s improving free cash flow (regular cash flow less maintenance capital expenditures). In fiscal 2022, free cash flow totaled $1.30 billion, up 6.5% from 2021.
The company is using that cash flow to reward investors. With the September 2022 payment, it will raise the quarterly dividend by 21.1%, to $1.15 a share from $0.95. Due to the stock’s big jump in the past years, the new annual rate of $4.60 yields 1.0%. Cintas has now increased the dividend each year since it went public in 1983.
The company also continues to buy back its shares, which raises earnings per share and other per-share calculations; in addition, repurchasing shares gives the remaining shareholders a larger stake.
In fiscal 2022, Cintas spent $1.53 billion on share repurchases. It just increased its current authorization by $1.0 billion, and it can now buy back up to $1.5 billion of its shares. There are no time limits for those purchases.
Many investors don’t keep a record of share price highs and lows. It would be helpful to readers if current advice on BUY opportunities indicated where the current share price is in relation to 2 years ago. Or on an annual basis.
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Many investors don’t keep a record of share price highs and lows. It would be helpful to readers if current advice on BUY opportunities indicated where the current share price is in relation to 2 years ago. Or on an annual basis.