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Cintas (CTAS) Displays Bright Prospects, Headwinds Remain

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On Dec 15, we issued an updated research report on Cintas Corporation (CTAS - Free Report) .

In the past six months, this Zacks Rank #3 (Hold) stock has returned 30.5% compared with the industry’s growth of 27.5%.

Present Scenario

Cintas is poised to benefit from the gradual reopening of majority of its customers’ businesses in the quarters ahead. Also, strength across the company’s healthcare and hygiene end markets, driven by solid demand for its personal protective equipment, bodes well for its top-line performance. This, along with its focus on enhancement of product portfolio, strong supply chain and distribution network, is likely to act as tailwind.

Also, Cintas focuses on expanding its market share, product offerings and customer base through acquisitions. For instance, its acquisition of Doritex Corp (February 2020) has been strengthening its offerings and customer reach across Buffalo and the surrounding Western New York region. Notably, it invested $53.7 million in acquisitions in fiscal 2020 (ended May 2020), an increase from $9.8 million used for buyouts in the previous fiscal.

In addition, it remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. In fiscal 2020, the company used $268 million for paying out dividends and repurchasing shares worth $464.5 million.

However, the challenging demand environment on account of the coronavirus outbreak-led issues might weigh on its top-line performance in the near term. For the second quarter of fiscal 2020 (ended November 2020), the company expects revenues of $1.725-$1.750 billion, suggesting a decline of 5.1-6.5% on a year-over-year basis.

Moreover, the company’s high-debt profile poses a concern. For instance, in the last five fiscal years (2016-2020), its long-term debt rose 19.5% (CAGR). Notably, the metric remained high at $2,290.4 million at the end of the first quarter of fiscal 2021 (ended August 2020). Any further increase in debt levels can raise the company’s financial obligations.

Key Picks

Some better-ranked stocks from the Zacks Industrial Products sector are Altra Industrial Motion Corp. , Applied Industrial Technologies, Inc. (AIT - Free Report) and Dover Corporation (DOV - Free Report) . While Altra Industrial currently sports a Zacks Rank #1 (Strong Buy), Applied Industrial and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial delivered a positive earnings surprise of 50.07%, on average, in the trailing four quarters.

Applied Industrial delivered a positive earnings surprise of 14.68%, on average, in the trailing four quarters.

Dover delivered a positive earnings surprise of 18.10%, on average, in the trailing four quarters.

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