Cintas Corporation - Growth & Income
December 22 2011 - 7:00PM
Zacks
Cintas Corporation (CTAS) carried its momentum into the
second quarter of its fiscal 2012 and delivered an outstanding 19%
EPS beat on solid organic revenue growth.
Management also raised its 2012 guidance, prompting
analysts to revise their estimates higher for both this year and
next. It is a Zacks #2 Rank (Buy).
On top of strong earnings growth potential, the
company also pays a dividend that yields a solid 1.5%.
Company Description
Cintas Corporation provides uniforms, restroom
supplies, first aid, safety and fire protection, and other
ancillary products to approximately 900,000 businesses. The company
should benefit from an improving labor market in the United States,
as more workers means more uniforms.
Cintas was founded in 1968 and has a market cap of
$4.5 billion.
Huge Second Quarter
Cintas delivered excellent second quarter 2012
results on December 20. Earnings per share came in at 57 cents,
crushing the Zacks Consensus Estimate by 9 cents. It was a whopping
50% increase over the same quarter in 2011.
Revenue rose 9% to a record $1.019 billion, ahead
of the Zacks Consensus Estimate of $1.003 billion. Organic revenue
increased a solid 7% as the company maintained its momentum in its
Rental Uniforms & Ancillary Products segment, as well as in it
First Aid, Safety & Fire Protection Services segment.
Operating income improved 30% year-over-year as the
company leveraged its selling and administrative expenses. The
operating margin improved from 10.9% to 13.0%.
Outlook
Management raised its guidance for the remainder of
its fiscal 2012 following strong Q2 earnings. The company now
expects EPS in the range of $2.16-$2.20, with revenue between
$4.075 billion and $4.125 billion. This is up from previous EPS
guidance of $1.97-$2.05 on revenue of $4.000-$4.100 billion.
The company stated that "while we remain cautious
about the U.S. economic picture, we have more confidence about our
ability to execute in this less than robust environment."
These factors caused analysts to raise their
estimates significantly for both 2012 and 2013, sending the stock
to a Zacks #2 Rank (Buy). The Zacks Consensus Estimate for 2012 is
now $2.19, within guidance, and representing 29% growth over 2011
EPS. The 2013 consensus estimate is currently 8% higher at
$2.35.
Dividend
Cintas has a history of rewarding its shareholders
and has raised its dividend every year since it began paying one in
1991. It currently yields a solid 1.5%.
It would be safe to bet that the company will
continue raising its dividend in the near future. Its payout ratio
is still relatively low at 27%, and earnings are projected to grow
at a healthy clip over the next couple of years.
Valuation
Shares of CTAS are up more than 20% since I wrote
about it on September 29. But valuation still looks very
reasonable. Shares trade at just 15.8x 12-month forward earnings, a
discount to its 10-year median of 17.8x.
The Bottom Line
With strong earnings momentum, solid growth
prospects, a rising dividend and reasonable valuation, Cintas still
offers plenty of upside potential.
This Week's Growth & Income Zacks Rank Buy
Stocks:
Kennametal Inc. (KMT) recently delivered its
10th consecutive positive earnings surprise on record EPS for the
first quarter. Management raised its EPS guidance for 2012,
prompting analysts to revise their estimates higher. It is a Zacks
#2 Rank (Buy) stock. Kennametal also recently raised its quarterly
payout by 17%, marking the first dividend increase in 4 years. It
yields a solid 1.6%. Read the full article.
The Kroger Co. (KR) recently delivered
excellent results for the third quarter of 2011, driven by a
stellar 5.0% increase in same-store sales. Management raised its
guidance for the remainder of the year off the strong quarter,
prompting analysts to revise their estimates higher, and sending
the stock to a Zacks #2 Rank (Buy). It also pays a dividend that
yields 1.9%. Read the full article.
Union Pacific Corporation (UNP) recently
posted record financial results for the third quarter of 2011,
beating the Zacks Consensus Estimates on both the top and bottom
lines. Analysts revised their 2011 and 2012 estimates higher off
the strong quarter, sending the stock to a Zacks #2 Rank (Buy). The
company is also shareholder-friendly as it buys back stock and
boosts its dividend. It currently yields a solid 2.4%. Read the
full article.
Total System Services, Inc. (TSS) delivered
the coveted triple play for the third quarter of 2011: a positive
revenue beat, positive earnings beat, and increased guidance from
management. This caused analysts to revise their estimates higher
for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy).
The company also increased its quarterly dividend for the first
time in over 5 years. It now yields a solid 2.1%. Read the full
article.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Co-Editor of the
Reitmeister Value Investor.
CINTAS CORP (CTAS): Free Stock Analysis Report
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