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What's in Store for Cintas (CTAS) this Earnings Season?

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Leading business service provider Cintas Corporation (CTAS - Free Report) is scheduled to report its first-quarter fiscal 2017 results after the closing bell on Sep 27. In the last reported quarter, earnings comfortably exceeded the Zacks Consensus Estimate by 6 cents. Cintas has beaten estimates in each of the last four quarters with an average positive earnings surprise of 5.69%. Let’s see how things are shaping up for this announcement.

Key Factors in the First Quarter

Cintas procures raw materials from a wide variety of domestic and international suppliers, making it susceptible to market risks. The volatility in raw material costs such as cotton may weigh on the margins in the upcoming quarterly results. Also, U.S. and foreign trade policies, tariffs and other impositions on imported goods, trade sanctions, and limitations on the imports of certain types of goods, particularly after Brexit, may adversely affect its profitability.

In addition, Cintas faces stiff competition from national, regional and local companies on various factors such as design, price, quality, service and convenience to the customers. Specifically, its first aid and fire protection services are decidedly commoditized markets and hence are subject to fierce competition. As such, the company has to continually invest in value drivers to fend off competition, which further weakens its profitability. Moreover, a persistently challenging macroeconomic environment has mostly driven customers to perform certain in-house services instead of outsourcing these services to Cintas, which have resulted in loss of business.

CINTAS CORP Price and EPS Surprise


CINTAS CORP Price and EPS Surprise | CINTAS CORP Quote

The company’s significant international operations expose it to the risks of fluctuations in foreign exchange rates, which in turn may materially impact its financial results. The company’s international operations are also exposed to risks of local legislation and unstable political conditions, which may present new challenges. These factors undermine the growth potential of Cintas to some extent.

During the to-be-reported quarter, Cintas inked a definitive agreement to acquire rival G&K Services Inc. to fuel its growth momentum. The transaction is expected to be completed within the next four to six months, subject to the fulfillment of mandatory closing conditions and regulatory approvals.

Earnings Whispers

Our proven model does not conclusively show that Cintas is likely to beat earnings this quarter as it lacks the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP:Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, currently stands at 0.00%.

Zacks Rank:Cintas carries a Zacks Rank #4 (Sell). The Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

IHS Markit Ltd. (INFO - Free Report) has an Earnings ESP of +22.22% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel Corporation (INTC - Free Report) has an Earnings ESP of +2.82% and Zacks Rank #2.

BlackRock, Inc. (BLK - Free Report) has an Earnings ESP of +0.20% and Zacks Rank #2.

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