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Momentum

Cintas Corporation (CTAS)

Cintas does more than just rental work uniforms.  Over the years, they have evolved into many diverse segments from document management to fire protection.  Even with this variety, just about all of their businesses are dependent on a strong consumer and healthy economy.

Because Cintas has contracts with many large industrial and commercial companies and runs a diversified corporation, they can not only weather more storms than their competition, but also offer customers a gamut of services at a good price to improve retention.

If you are a believer in the American consumer and economic recovery then Cintas may be a stock to watch.  It has been building solid momentum over the past several months and recently reported a blow-out quarter which sent shares soaring. 

Company Description & Developments
Cintas provides highly specialized services to businesses of all types throughout North America. It is the largest company in the space and services more than 900,000 businesses.  Founded in 1983, Cintas has become the go-to for everything from the design, manufacture and implementation of corporate identity uniform programs to entrance mats, restroom supplies, promotional products, document management and even fire protection, first aid and safety services.

They have over 430 facilities in the US and Canada that employ over 30,000 people.  The rental division is still the company’s largest but is just a part of their overall pie.  You will find Cintas’ floor mats, first aid kits, fire alarms and suppression systems, hand soaps and air fresheners in many large and mid-size companies across the US.

They may not be a visible to the general public, but to their customers, they offer invaluable service and a positive corporate culture that propels their success. 

For all you “green” folks out there, Cintas is making the first transition in the industry to a phosphate-free and EDTA-free biodegradable solution for the laundering of their uniforms. Washing Systems LLC is the supplier of these new sustainable laundry products and is their partner in this new venture.    

Financial Profile
CTAS is a mid-cap (5.01 billion) company that is trading at about 17 times forward (expectations for next quarter) earnings.  CTAS became a Zacks Rank 1 strong buy on December 23rd, 2011 after their strong results on December 20th.     

The services company reported a quarterly sales increase of 1% at their last earnings report, but saw a 10% rise in EPS for the same period.  Annual sales were up 9% compared to (fiscal) Q22011 with total sales of roughly 3.8 billion in FY2011.  CTAS earnings jumped from a $1.40 to $1.69 profit from FY2010 to FY2011.  CTAS is expected to earn $2.19 in FY2012 according to the Zacks Consensus Estimate. 

Earnings Estimates
Cintas reported strong earnings last quarter that beat estimates by 19%.  On the call, Cintas noted record revenue and saw a 50% jump in EPS year over year.  They also saw margins increase throughout several of their business. Cintas has surprised analysts to the upside for the past 4 quarters in a row an average of 13.66%.

Expectations are for CTAS to generate $0.52 in income this quarter when they report on March 20th.  Of the 12 analysts who cover CTAS, the consensus is for the company to grow earnings by 30% in the current year (FY2012) and roughly 11% in FY2013. 

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago for the current and next quarters as well as FY2012 and FY2013.  It was interesting to note that the CEO was cautious in their September report.  Once he realized that they were able to deliver such strong results in the December report, Cintas upped their guidance for the entire year which pushed their stock even higher.

He was confident that even in challenging times Cintas would be able to deliver.  If the economy is indeed improving, results should be even better.

Market Performance & Technicals
CTAS struggled a bit in the last half of 2011 and fell almost 27% from the July highs to its lows in October.  Late November was key for the stock as it broke above the 50 day moving average and began to pick up steam.

After the last report, the stock was propelled above both moving averages and has continued to rise in the past couple weeks.  CTAS is now firmly above its 50 and 200 day moving averages of $35.73 and $31.92 respectively.  The recent consolidation has developed some support at the $37.00 level as well.  Below that look at $34.45 as a major level aside from the moving averages. 

CTAS has exceeded the S&P 500’s performance by 31% in the past year and over 18% in the past 3 months.  Given its recent consolidation in the past couple weeks, Cintas is lagging the index by about 2%.  The good news is that consolidation is when a stock will generally build a foundation.  The stock is also relatively cheap which will benefit it if the market takes another leg up.  If consumer strength continues to improve, look for CTAS stock to follow suit.    

 Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

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