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Bull of the Day

A lower unemployment rate means higher profits for uniform provider UniFirst Corporation (UNF - Snapshot Report). The company's revenues are directly impacted by the number of workers employed by its customers, so as the unemployment rate slowly but surely declines, UniFirst should continue to see solid organic top-line growth.

The company recently delivered its 7th consecutive positive earnings surprise, and management raised its guidance for 2013. This prompted analysts to revise their estimates significantly higher for both this year and next, driving the stock to a Zacks Rank #1 (Strong Buy) stock.

About UniFirst

UniFirst Corporation provides workplace uniforms and protective clothing to all types and sizes of businesses in the United States. The company serves over 240,000 customer locations throughout North America, Canada and Europe. It was founded in 1936 and has a market cap of $1.6 billion.

Strong Q1 Beat

UniFirst delivered better-than-expected results for its fiscal 2013 first quarter on January 3. Revenue rose 6% to $332.6 million, which was ahead of the Zacks Consensus Estimate of $327.0 million. This is particularly impressive considering that employee levels at its existing customers remained unchanged during the quarter.

The company also experienced solid profit margin expansion as it was able to leverage its fixed expenses. The operating margin, for instance, expanded 150 basis points to 15.0%, leading to an 18% increase in operating income.

Earnings per share jumped 18% to $1.54, crushing the Zacks Consensus Estimate of $1.33. It was the company's 7th consecutive positive earnings surprise.

Increased Guidance, Estimates

Following strong Q1 results, management increased its full year guidance to $5.10-$5.25 per share, up significantly from its previous estimate of $4.65-$4.85.

This prompted analysts to raise their estimates for both 2013 and 2014 meaningfully higher, sending the stock to a Zacks Rank #1 (Strong Buy). The 2013 Zacks Consensus Estimate jumped from $4.82 before the earnings release to $5.20, while the 2014 consensus increased from $5.22 to $5.50 over the same period.

The Zacks Industry Rank, which is based on the Zacks Rank, is bullish too. The 'Uniform & Related' industry ranks in the top 8% of all industries (21 out of 265).

Reasonable Valuation

Shares of UNF are up almost 6% since the strong Q1 earnings report, but valuation is still very reasonable. Shares currently trade at 15x forward earnings, in-line with the industry median. And its price to book multiple of 1.7 is well below the industry median of 2.5.

The Bottom Line

With favorable industry trends, strong earnings momentum and reasonable valuation, UniFirst offers a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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