Back to top

Image: Bigstock

Cintas (CTAS) Stock Holds Promise Despite Cost Headwinds

Read MoreHide Full Article

Cintas Corporation (CTAS - Free Report) is witnessing consistent growth in its Uniform Rental and Facility Services, and First Aid and Safety Services segments, which is driving its top line (up 10.4% year over year in fiscal 2022). Increased capacity of several customers' businesses is aiding the Uniform Rental and Facility Services segment, revenues from which rose 9.4% year over year in fiscal 2022. Strength across the first aid cabinet service business is boosting the First Aid and Safety Services segment’s performance. Revenues from the segment climbed 6.1% in fiscal 2022. The company is also seeing strong growth across its uniform direct sale and fire protection services businesses. For fiscal 2023, Cintas expects revenues of $8.47-$8.58 billion ($7.85 billion reported in fiscal 2022). The company expects earnings per share of $11.90-$12.30 in the current fiscal year. In fiscal 2022, it reported adjusted earnings of $11.28. Adjusted operating income is expected to be $1.68 billion-$1.73 billion in fiscal 2023 compared with $1.55 billion reported in fiscal 2022.

Cintas' focus on enhancing its product portfolio as well as investments in technology and existing facilities should continue to drive its performance. Also, its focus on operational execution, cost-control measures and pricing actions is helping it maintain healthy margin performance. For instance, in the fiscal fourth quarter, operating margin improved to 19.5% from 19.4% in the year-ago period despite significant inflationary pressure.

Over the years, Cintas has consistently returned significant cash to shareholders through dividends and share repurchases. In fiscal 2022, the company repurchased shares worth $1.53 billion, up from $554.12 million in the year-ago period. Dividend payments totaled $375.12 million in fiscal 2022. Owing to strong performance in fiscal 2022, the company hiked its quarterly dividend by 21.1% to $1.15 per share in July 2022. CTAS has consistently raised its dividend for 39 straight years. In addition to the dividend hike, the company’s board also approved a new share buyback program, authorizing it to buy back up to $1 billion worth of shares. This is in addition to the existing buyback program, under which $0.5 billion worth of shares is yet to be purchased.

However, high labor and purchasing costs pose a threat to Cintas’ bottom line. In fiscal 2022, CTAS’ cost of sales (comprising costs related to uniform rental and facility services as well as others) increased 11.1% year over year to $4.22 billion. Also, selling and administrative expenses increased 6% in fiscal 2022. Escalating costs, if not checked, might impact margin performance.

Given Cintas’ vast exposure to international markets, adverse foreign currency movements might impact its overseas business performance in the quarters ahead.

Zacks Rank & Key Picks

Cintas currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks within the broader Industrial Products sector are as follows:

Lindsay Corporation (LNN - Free Report) sports a Zacks Rank #1 (Strong Buy). LNN pulled a trailing four-quarter earnings surprise of 25.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

Lindsay Corporation has an estimated earnings growth rate of 44.1% for the current year. Shares of the company have rallied 25.3% in the past six months.

Greif, Inc. (GEF - Free Report) presently carries a Zacks Rank #2 (Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average.

Greif has an estimated earnings growth rate of 36.8% for the current year. Shares of the company have gained 20% in the past six months.

In-Depth Zacks Research for the Tickers Above

One ticker, your choice, absolutely free ($25 value):

Lindsay Corporation (LNN) - free report >>

Cintas Corporation (CTAS) - free report >>

Greif, Inc. (GEF) - free report >>

Published in