Cintas (CTAS) stock price has done well in the past decades, outperforming the S&P 500 index and most companies. It has risen by over 35% this year and by over 225% in the last five years. Also, it has jumped by over 1,130% in the last decade, helping it push its market cap to over $82 billion.
Strong market share
Cintas is a company that most Americans have never heard about because it is a business-to-business organisation.
It is one of the biggest providers of work uniforms, which are mostly used in industries like healthcare, gaming, hospitality, automotive, and education. It provides its uniforms to companies like Ford, General Motors, Hilton, and Marriott.
In addition to uniforms, Cintas also provides solutions like first aid and safety supplies, janitorial services, restroom supplies, training and compliance, and protective apparel.
These are highly important services that are needed by most companies in the US and other countries. Its main benefit is that companies rarely change their suppliers, which means that it has been providing these services to some companies for decades.
The uniform rental business is its biggest one, generating over $7.45 billion in 2023. It is followed by its first aid and safety services, which brought in over $1.06 billion in revenues during the year. The other services make it over $1 billion.
Cintas’ business has been growing, albeit at a slow pace in the past few years. Its annual revenue has grown from over $5.6 billion in 2019 to over $7.4 billion in 2023. At the same time, the net profit rose from $876 million to over $1.57 billion in the same period.
Cintas earnings ahead
The next important catalyst for Cintas stock will be its quarterly earnings scheduled for September 25. These numbers will provide more color on how the business is doing and what to expect this year.
The most recent Q4 results showed that its revenue rose to about $2.47 billion, up from $2.28 billion in the same period in 2023. Its organic growth was about 7.5%, which is a good rate for a company that has been around for decades.
Cintas has also been growing its margins, with the gross figure being 48% against the industry median of 31%. Its net income margin was 16.38%, higher than the industry’s median of 6.5%.
For the financial year, its net income as a percentage of revenue jumped to a record high. The company also provided a robust forward guidance for the year. It expects that its revenue will be in the range of $10.16 billion and $10.31 billion, higher than the $9.56 billion it made last year.
Analysts expect the first quarter revenues to come in at $2.5 billion, higher than the $2.38 billion it made in the same period last year. Its earnings per share of $0.95 will be higher than the 92 cents it made last year.
These numbers will likely show that the company is still growing, a trend that could accelerate now that the Fed has started to cut interest rates.
Most importantly, the company has continued to repurchase its stock, which has dropped the number of outstanding shares from over 420 million in 2020 to 405 million today.
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Valuation concerns remain
The biggest concern for Cintas is that it is not a cheap company. This is a firm that made a net profit of $1.5 billion in the last financial year with a market cap of over $84 billion.
Data by SeekingAlpha shows that Cintas has a trailing P/E ratio of 53.20 and a forward multiple of 48. The industry median is 20.2 and 19.8, meaning that it is trading at a premium of over 140%.
Cintas also has an EV-to-EBITDA ratio of 31, higher than the industry median of 11.6 while its price-to-book ratio of 17 is also higher than the industry average.
A good way to look at a company’s valuation is to assume that you buy it at the current valuation of $84 billion. Assuming no significant growth a P/E ratio of 53 means that it would take you these years to become profitable. This explains why the average analyst’s estimate is $192 against the current $203.
Cintas stock price analysis
Turning to the weekly chart, we see that the Cintas share price has been in a strong bull run and is sitting at $203. It has moved significantly above the 50-week and 100-week moving averages, which are at $166 and $146, respectively.
The stock has become highly overbought, with the Relative Strength Index (RSI) soaring to over 70. Therefore, while the bull run may continue, there is a likelihood that it will pull back slightly after earnings.
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