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Cintas (CTAS) Poised to Beat Q4 Earnings on Organic Growth

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Leading business service provider Cintas Corporation (CTAS - Free Report) is scheduled to report fourth-quarter fiscal 2017 results after the closing bell on Jul 20. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by 5 cents. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Cintas is likely to beat earnings this quarter as it possesses 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 perfectly the case here as you will see below:  

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate of $1.09 and the Zacks Consensus Estimate of $1.08, is +0.93%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cintas Corporation Price and EPS Surprise


Cintas Corporation Price and EPS Surprise | Cintas Corporation Quote

Zacks Rank: Cintas currently carries a Zacks Rank #2. This combined with a positive ESP increases the predictive power of ESP and makes an earnings prediction likely.  

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Key Factors in the Quarter

With continued focus on core businesses, Cintas recorded industry leading revenue growth over the past few quarters. New business wins, deeper penetration of existing customers with more products and services and customer retention remains key strengths of the company. In addition, Cintas 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 completed the acquisition of rival, G&K Services Inc. With annual revenues of approximately $1.0 billion, G&K Services has over 170,000 customers in the U.S. and Canada. The successful integration of G&K Services is likely to expand Cintas’ customer profile and augment its revenues. 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 expected to yield $130 million to $140 million in cost savings and the transaction is anticipated to be accretive to Cintas’ earnings in the full year of its operation. Although the transaction is not likely to have any direct impact on the impending quarterly results, it is likely to attract favorable contracts from existing as well as new customers and improve the top line.

Cintas has a strong balance sheet with adequate liquidity to meet its working capital requirements. Over the years, the company has consistently returned significant cash to its shareholders through dividends and share repurchases. Its investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the broader industry.

In order to enhance shareholder value, Cintas has modified its share repurchase program. Under the new share repurchase program, the company doubled its share authorization tally to enable the repurchase of an additional $500 million worth of stock over a period of time. The additional shares over its existing $500 million share repurchase authorization could be repurchased through a slew of open market transactions. All these factors bode well for the financial stability and expansion plans of the company.

Other Stocks to Consider

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

United Technologies Inc. (UTX - Free Report) , with an Earnings ESP of +2.26% and a Zacks Rank #3.

3M Company (MMM - Free Report) , with an Earnings ESP of +1.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fifth Third Bancorp (FITB - Free Report) , with an Earnings ESP of +2.38% and a Zacks Rank #3.

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