As you’re no doubt familiar, as part of our three-pronged approach to investing, we recommend investors avoid companies in the media limelight. (The other two parts are diversifying your holdings across the five main economic sectors and sticking to well-established companies).
A great example of an out-of-the-limelight stock is Cintas Corp., a uniform rental company. Despite its low profile with most investors, the stock has soared 189% in the past five years. In fact, shares have skyrocketed 1,871.6% since we first recommended it at $10.25 a share (adjusted for splits) in the October 2005 issue of Wall Street Stock Forecaster.
Those gains were partly due to acquisitions of smaller competitors. However, in this case, that strategy is less risky than it appears. The company operates in a highly fragmented industry, and using acquisitions not only expands its client base but also deepens its product offerings for those clients.
We expect this firm will continue to gain new clients, particularly as it currently serves just 1 million of the 16 million businesses in North America. That’s why we feel the firm is worth buying now even though the stock trades at 46.9 times the company’s forward earnings forecast.
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 uniforms, which it makes and cleans at its own factories, and from renting a wide variety of related products, such as 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.
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Businesses that provide services, such as hotels, restaurants, airlines and hospitals, account for 70% of Cintas’s revenue. Manufacturing businesses and construction firms supply the other 30%.
In all, Cintas has 467 operating facilities, 12 distribution centres and over 11,700 local delivery routes. That’s about twice as large as its nearest competitor. The company’s operations in the U.S. account for over 90% of its revenue.
Cintas Corp.: Revenues and earnings grow significantly with more to come
Cintas continues to gain as businesses hire more workers, which is spurring demand its uniforms. Lower costs for cotton and energy are also boosting its profits.
In its fiscal 2025 second quarter, ended November 30, 2024, revenue rose 7.8%, to $2.56 billion from $2.38 billion a year earlier. That matched the consensus forecast.
The higher revenue and a lower tax rate lifted the company’s earnings in the quarter by 19.7%, to $448.5 million from $374.6 million. Due to fewer shares outstanding, per-share earnings rose at a faster rate of 21.1%, to $1.09 from $0.90. That also topped the consensus estimate of $1.01 a share. (Note—All per-share amounts adjusted for a 4-for-1 stock split on September 11, 2024.)
The company recently shifted its various computer systems to a single, cloud-based platform. That gives it better control over inventories and speeds up the collection of payments from its clients. Better knowledge of trends in local markets also helps Cintas adjust its prices to win new contracts and secure renewals.
The company is using sensors on its trucks to monitor their delivery times. By analyzing that data, through a system it calls Smart Truck, it can create more efficient routes and reduce fuel costs. The system also frees up time that drivers can spend with clients, which helps them better respond to their individual needs and improve retention rates.
Cintas now expects its revenue for fiscal 2025 will rise 7.7%. It should also earn between $4.28 and $4.34 a share, which is higher than its earlier forecast of $4.17 to $4.34 a share. The stock, which has jumped over 35% in the past year, trades at 46.9 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 stock yields 0.8%.
Recommendation in Wall Street Stock Forecaster: Cintas Corp. is a buy.
