Market leaders like Cintas Corp. use their dominance to leverage their scale and expertise to drive growth. When combined with varied revenue streams, this diversification reduces risk and enhances revenue stability.
That’s how this company has consistently grown revenues and earnings – it’s a top performer that’s well-positioned to keep expanding its footprint through strategic acquisitions of smaller competitors.
The stock trades at 47.4 times the company’s forward earnings forecast, a number that sounds high until you take into account the exceptional growth prospects that market leaders enjoy.
And that’s why we consider this a top pick for the long run for subscribers – it’s returned a huge 81.8% over the last two years as compared to 36.4% for the S&P500. We feel there’s lots more to come.
CINTAS CORP. (Nasdaq symbol CTAS ; www.cintas.com) designs and makes uniforms, then sells them to businesses, mainly in North America. It also offers related products and services such as office cleaning and first-aid kits.
Cintas gets 78% of its revenue from renting and selling uniforms, which it makes and cleans at its own factories, and from renting out a wide variety of related products; those include floor mats, towels, mops and cleaning supplies.
It gets a further 11% of its revenue by providing first-aid kits, as well as safety equipment, such as eyewash stations, and personal protective gear like goggles and face masks. The remaining 11% comes from selling uniforms to businesses, and providing fire extinguishers, sprinklers and emergency-exit lights. In addition, Cintas helps its clients comply with local safety regulations.
The uniform rental business is highly fragmented, with over 600 firms in North America. Buying smaller competitors gives Cintas a low-risk way to add new clients and expand into new areas.
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Growth Stocks: Revenues rose and earnings beat forecasts at Cintas Corp.
Cintas has continued to gain as businesses, particularly airlines and hotels, have resumed full operations in the wake of pandemic closures. The company is also selling more services to its existing clients. Those include hygiene products that prevent the spread of diseases such as COVID-19.
In its fiscal 2024 fourth quarter, ended May 31, 2024, revenue rose 8.2%, to $2.47 billion from $2.28 billion a year earlier. That matched the consensus forecast.
The higher revenue also helped lift the company’s earnings in the quarter by 19.8%, to $3.99 a share (or a total of $414.3 million) from $3.33 a share (or $346.2 million). That topped the consensus estimate of $3.80 a share.
Cintas expects its revenue in fiscal 2025 will rise about 8.0%. It should also earn between $16.25 and $16.75 a share. The stock, which has soared 60% in the past year, trades at 47.4 times the midpoint of that new range. That’s a high p/e, but still acceptable given the company’s leading position in its niche market and its improving profitability. The $6.24 dividend yields 0.8%.
Investors should note that these per-share figures do not reflect Cintas’s plan to split its common shares on a 4-for-1 basis in September 2024. The split should improve its liquidity and make it easier for smaller investors to buy the stock.
Recommendation in Wall Street Stock Forecaster: Cintas Corp. is a buy.
