Cintas (CTAS) Delivers Impressive Results, But The Stock Seems Super Overvalued

Stock (Symbol)

Cintas (CTAS)

Stock Price

$205

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, +6% 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, +10% 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 13%. The stock also yields around 1%. CTAS has raised the dividend ever year since going public, with dividend increases since 1983. During the quarter, Cintas increased its quarterly dividend per share of common stock by 16% and for the 41st consecutive annual dividend increase. CTAS is on the radar for the Conservative Growth Portfolio. I am looking for the stock to pull back so I can invest.

One Year Chart

CTAS continues to trend higher with steady upward momentum. 

The P/E ratio of 48 is a very high. The stock is doing a great job but it is going too high with out me.

Est. LTG of 13% increased a little bit from 12% last quarter.

Qtrly profit growth has been above average the past few quarters.

Earnings Table

Organic growth by business was 7% for Uniform Rental and Facility Services, 14% for First-Aid and Safety Services, 14% for Fire Protection Services, and Uniform direct sales was down 2%. Management stated that First Aid and Safety and Fire Protection businesses each generated double digit year-over-year growth. Although, management stated that total growth was negatively impacted by 1.6% due to one fewer workday compared to the prior year period.

Annual Profit Estimates are up this qtr. For Fiscal 2025 (which we call 2024), management expects revenue to be in the range of $10.22 billion to $10.32 billion, the total growth rate of 6.5% to 7.5%.

Qtrly Profit Estimates are for 12%, 4%, 12%, and 7% 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 48. That’s kind of expensive.

My Fair Value is a P/E of 38 which is $161, downside of 21%. The stock seems pricey.

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

CTAS has a Fiscal Year End on May 31. Since there’s 7 months in the current year, I’m calling this year 2024 even though management has it as Fiscal 2025.

Bottom Line

Cintas (CTAS) has been a great stock the past decade, but that hasn’t always been the case. When I look back to the stock since its IPO I see it went public at $1 in 1983, and was in an uptrend until 1998, then went sideways from 1999-2007, declined during the Financial Crisis of 2008/2009, and has been in an uptrend since.

Cintas continues to deliver solid profit profit growth. This company is a machine. I messed up selling the stock years ago.

CTAS is on the radar for the Conservative Growth Portfolio.

Power Rankings

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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