This Looks Like a Good Time to Buy Unform Cleaning Company Cintas (CTAS)

Stock (Symbol)

Cintas (CTAS)

Stock Price

$169

Sector

Data is as of

Expected to Report

Company Description

The Company helps businesses of all types and sizes, primarily in the United States, as well as Canada and Latin America.

Its segments include Uniform Rental and Facility Services, and First Aid and Safety Services.

Uniform Rental and Facility Services segment consists of the rental and servicing of uniforms and other garments, including flame-resistant clothing, mats, mops and shop towels and other ancillary items. In addition to these rental items, restroom cleaning services and supplies and the sale of items from its catalogues to its customers on route are included within this segment.

First Aid and Safety Services segment consists of first aid and safety products and services.

The remainder of its segments, which consists of the Fire Protection Services segment and the Uniform Direct Sale segment, is included in All Other.

It provides its products and services to small service and manufacturing companies to corporations. Source: Refinitiv

Sharek’s Take

Cintas is the largest uniform supplier in North America, but the company offers so much more to small, medium, and large businesses. Cintas has a great system which is to provide each worker uniforms for two weeks, with one set being used by the employee and the other being laundered. Once a week a Cintas rep comes to the facility, drops off clean uniforms and picks up dirty ones. Companies have no up-front investment, as Cintas funds the program setup. In addition to uniforms, Cintas provides floor care, restroom supplies, first aid and safety products, fire extinguishers, and safety compliance training. During COVID-19 the company was a big provider of sanitizers and other PPE products. Here are some fun facts about Cintas:

• Cintas was founded in 1968 when Richard T Farmer left his family laundry business to launch a uniform business using an exclusive new fabric.
• In the early 1970s, Cintas acquired the family laundry business, and since then has developed new products and services to compliment the existing business.
• As of May 2023, the company had 11,500 local delivery routes, 463 facilities, and 12 distribution centers.
• Its customer base has been 70% services industries such as hospitality, healthcare, and food service with 30% in goods producing industries such as manufacturing and construction.

Cintas is made up of the following business segments:

• Uniform Rental and Facility Services: 77% of revenue last qtr, +8% growth year-over-year.
  • This segment includes the rental and cleaning of uniforms, including flame-resistant clothing.
  • The company’s walk-off mats are something you’ve probably traveled past today and might come weekly with new mops.
  • Restroom cleaning services and supplies are also included in this division.
• First Aid & Safety Services and all Others: 23% of revenue last qtr, +13% growth.
  • This segment includes first aid products, fire extinguishers and alarms, safety products, and personal protective equipment (PPE).
  • On the healthcare side, Cintas offers hygiene supplies, including dental equipment.
  • This segment also includes Fire Protection Services and Uniform Direct Sales.

Cintas is a high-quality Blue Chip stock with a dividend, a stock buyback program, and a history of growing profits at a double-digit rate. Revenue and profits (EPS) have increased in 50 of the past 52 years, including 39 consecutive years before the Great Recession (2000). Some of the growth comes from acquisitions of other uniform companies. Analysts gave the stock an Estimated Long-Term Growth Rate of 12%. The stock also yields around 1%. CTAS has raised the dividend ever year since going public, with dividend increases since 1983. CTAS will be purchased for the Conservative Growth Portfolio today.

One Year Chart

CTAS stock dropped recently as profit growth has slowed to around 10% a quarter. 

CTAS has a P/E of 31 this qtr. Note, this is the lowest P/E since our 2022 Q4 report in January 2023. My Fair Value is a P/E of 35.  Also, since we are in CTAS’s Fiscal Q4, I’m calculating the P/E on next year’s profit estimates.

CTAS Est. LTG is 12%, up from 11% last qtr.

Profit growth is expected to accelerate a bit nexxt quarter.

Earnings Table

• Uniform Rent and Facility Services continues to perform well with organic growth of 7%
• First Aid and Safety Services organic growth was 15%.
• Fire Protection Services organic growth was 10%.
• Uniform Direct Sales organic growth was up 3%.

Annual Profit Estimates increased this qtr. For this fiscal year, management expects revenue to be ~$11.2 billion representing ~9% growth year-over-year.

Qtrly Profit Estimates are for 14%, 11%, 12%, and 10% profit growth in the next 4 qtrs. Analysts predict Cintas’ revenue will grow 8% this quarter.

Fair Value

CTAS used to have a P/E ratio in the high-20s. Now P/E is at 34 when we look at 2025 profit estimates. That’s around where I think it should be.

When we plug in 2026 profit estimates, that gives the stock 13% upside to $190 a share. Nice!

My 2027 Fair Value sits at $210 a share, giving the stock upside of 25%.

CTAS has a Fiscal Year End on May 31. I’m calling this fiscal year 2025 while the company calls it 2026.

Also, the company used to pay dividends once per year. In October 2020, the Board of Directors changed the dividend policy to quarterly.

Bottom Line

Cintas (CTAS) has been a great stock the past decade, but that hasn’t always been the case.

Cintas is on a rare dip. I love this company and am happy to add it back to client portfolios.

CTAS will be purchased for the Conservative Growth Portfolio. The stock will rank 9th in the Power Rankings.

Power Rankings

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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