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Cintas (CTAS) to Be Added to Nasdaq 100: Should You Buy?
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As part of its annual routine, benchmark index Nasdaq, Inc. (NDAQ - Free Report) recently re-ranked the NASDAQ-100 index in accordance with the quadruple witch expiration of the quarter. The reshuffled index will include four new companies replacing an identical number of companies from the previous list and will be effective from Dec 19, 2016.
The NASDAQ-100 index comprises the 100 largest non-financial companies that are listed on the Nasdaq. Since its inception in 1985, the NASDAQ-100 index has offered an average return of 3,731% and act as benchmark for various financial instruments such as options, futures and funds. The index is re-ranked every December to coincide with quadruple witching, which refers to the third Friday of every calendar quarter, when market index futures, market index options, stock options and stock futures expire, usually resulting in increased volatility.
Business services provider Cintas Corporation (CTAS - Free Report) is a notable inclusion in the refurbished list. The stock has outperformed the Zacks categorized Linen Supply & Related industry in the past month with an average return of 10.7% compared with 8.4% for the latter. In addition, it has a Value Growth Momentum score (VGM score) of ‘B’. Our research shows that stocks with a VGM score of ‘A’ or ‘B’, when combined a favorable Zacks Rank offer the best investment opportunities for investors. Furthermore, Cintas has long-term earnings growth expectation of 12.4% compared with 2.8% for the industry.
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 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 also increased its guidance for fiscal 2017. The company 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.
Superior Uniform Group has a long-term earnings growth expectation of 13.5% and and is currently trading at a forward P/E of 22.6x.
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Cintas (CTAS) to Be Added to Nasdaq 100: Should You Buy?
As part of its annual routine, benchmark index Nasdaq, Inc. (NDAQ - Free Report) recently re-ranked the NASDAQ-100 index in accordance with the quadruple witch expiration of the quarter. The reshuffled index will include four new companies replacing an identical number of companies from the previous list and will be effective from Dec 19, 2016.
The NASDAQ-100 index comprises the 100 largest non-financial companies that are listed on the Nasdaq. Since its inception in 1985, the NASDAQ-100 index has offered an average return of 3,731% and act as benchmark for various financial instruments such as options, futures and funds. The index is re-ranked every December to coincide with quadruple witching, which refers to the third Friday of every calendar quarter, when market index futures, market index options, stock options and stock futures expire, usually resulting in increased volatility.
Business services provider Cintas Corporation (CTAS - Free Report) is a notable inclusion in the refurbished list. The stock has outperformed the Zacks categorized Linen Supply & Related industry in the past month with an average return of 10.7% compared with 8.4% for the latter. In addition, it has a Value Growth Momentum score (VGM score) of ‘B’. Our research shows that stocks with a VGM score of ‘A’ or ‘B’, when combined a favorable Zacks Rank offer the best investment opportunities for investors. Furthermore, Cintas has long-term earnings growth expectation of 12.4% compared with 2.8% for the industry.
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 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 also increased its guidance for fiscal 2017. The company 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 #3 (Hold) stock. A better-ranked stock in the industry is Superior Uniform Group, Inc. (SGC - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Superior Uniform Group has a long-term earnings growth expectation of 13.5% and and is currently trading at a forward P/E of 22.6x.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>