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Cintas (CTAS) Remains Poised for Healthy Long-Term Growth

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On Jan 10, Zacks Investment Research updated the research report on business service provider Cintas Corporation (CTAS - Free Report) .

Cintas recorded relatively modest second-quarter fiscal 2017 results on the back of healthy top-line growth. Net income from continuing operations for the reported quarter improved to $123.5 million or $1.13 per share from $115.5 million or $1.03 per share in the year-earlier quarter.

Quarterly revenues increased 6.4% year over year to $1,296.9 million, exceeding the Zacks Consensus Estimate of $1,292 million. Organic growth for the reported quarter improved 5.7% year over year. The superior top-line performance was primarily attributable to the addition of new customers, strong customer retention and higher penetration of existing customers through better and innovative products and services.

Cintas has outperformed the Zacks categorized Linen Supply & Related industry in the last three months with an average return of 5.6% compared with 5.0% by the latter. Revenues have steadily increased over the past few quarters. Cintas aims to continually achieve revenue buildup by increasing penetration levels at existing customers and broadening the customer base to include fresh business segments. The company also identifies additional product and service opportunities for its current and future customers to expand its portfolio. This focused approach for a steady top-line growth is commendable.



In Aug 2016, Cintas inked a definitive agreement to acquire rival G&K Services, Inc. (GK - Free Report) to fuel its growth momentum. The combined company is likely to cater to over one billion business customers with an extended product portfolio and additional processing capacity. Customer service is also likely to improve with increased route density. The synergies from the combined operations are likely to yield $130 million to $140 million in cost savings and the transaction is anticipated to be accretive to Cintas’ earnings from the second year of its operation.

Buoyed by healthy second-quarter fiscal 2017 results, Cintas increased its guidance for fiscal 2017. The company currently expects revenues in the range of $5.180 billion to $5.225 billion, up 5.6–6.5% year over year. Earnings from continuing operations are expected to be within $4.57–$4.65 per share, up from $4.55–$4.63 anticipated earlier. The current earnings per share guidance represents a year-over-year improvement of 11.7–13.7%. The bullish guidance looks quite encouraging for the investors. In addition, healthy organic growth over the past few quarters has lent stability to the revenues and has enabled the company to comfortably beat the earnings estimates for a positive earnings surprise of 4.6% over the trailing four quarters.

We remain bullish on the healthy growth prospects of this Zacks Rank #2 (Buy) stock. A couple of other favorably ranked stocks in the industry include NV5 Global, Inc. (NVEE - Free Report) and Gartner, Inc. (IT - Free Report) , both carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NV5 Global has a long-term earnings growth expectation of 20%. It has beaten estimates thrice in the trailing four quarters for an average positive earnings surprise of 6.9%.

Gartner has long-term earnings growth expectation of 17.3%. It has beaten estimates in each of the trailing four quarters with an average positive earnings surprise of 14.5%.

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