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Cintas (CTAS) Remains Poised for Solid Inorganic Growth

MANT CTAS GK SGC

Trades from $3

On Nov 7, Zacks Investment Research updated the research report on business services provider Cintas Corporation (CTAS - Free Report) .  

Cintas started fiscal 2017 on a positive note, recording solid first-quarter results on the back of healthy top-line growth. Both earnings and revenues improved year over year and beat the respective Zacks Consensus Estimate.

While quarterly revenues increased 7.9% to $1,294.1 million, organic growth 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 aims to continually achieve revenue build up 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 steady top-line growth is commendable.

Cintas has recently 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 the healthy first-quarter fiscal 2017 results, Cintas increased its guidance for fiscal 2017. The company currently expects revenues in the range of $5.160 billion to $5.225 billion, up 5.2–6.5% year over year. Earnings from continuing operations are expected to be within $4.55–$4.63 per share, up from $4.35–$4.45 anticipated earlier. The current earnings per share guidance represent a year-over-year improvement of 11.2–13.2%. The bullish guidance looks quite enterprising 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 5.5% over the trailing four quarters.

We remain encouraged by the inherent growth potential of this Zacks Rank #2 (Buy) stock. A couple of other favorably ranked stocks in the industry include Superior Uniform Group, Inc. (SGC - Free Report) and ManTech International Corporation (MANT - Free Report) , both carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Superior Uniform has a long-term earnings growth expectation of 13.5% and is currently trading at a forward P/E of 18.0x.

ManTech has a long-term earnings growth expectation of 8% and is currently trading at a forward P/E of 25.5x.

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