Topic: Growth Stocks

This growth stock is enjoying uniformly good results

An improved economy should benefit this stock as customers across North America spend more on its products and services.

The company has a dominant niche in the sale and rental of uniforms across North America, as well as a variety of related merchandise. That makes its products and services hard to replace. Following the acquisition of a major rival in 2017, its revenue and earnings have grown steadily, while the stock is up 60% in the past year.

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CINTAS CORP.  (Nasdaq symbol CTAS; designs, manufactures and sells uniforms to one million businesses, mainly in North America. In addition to renting and cleaning uniforms, Cintas also rents out a variety of related products such as mats, towels, mops and cleaning supplies. As well, it sells first-aid kits, fire extinguishers, sprinklers and emergency-exit lights.

In March 2017, Cintas completed its acquisition of Minnesota-based G&K Services Inc. That firm supplies corporate uniforms and other services. G&K has 165 facilities across the U.S. and Canada.

Cintas paid $2.2 billion, which included the firm’s debt. It now expects to reduce overlapping operations and cut between $130 million and $140 million from its annual costs by the end of the fourth year. The company recently announced that it has now converted all G&K operations to its own Cintas operating systems. At the same time the company is upgrading its operations with new enterprise resource planning system software.

As a result of the G&K purchase, Cintas’s revenue for the fiscal 2018 fourth quarter, ended May 31, 2018, rose 9.1%, to $1.67 billion from $1.53 billion a year earlier. Excluding integration costs, earnings jumped 41.6%, to $1.77 a share from $1.25.

For the full fiscal year, revenue rose 21.7% to $6.47 billion from $5.32 billion for fiscal 2017. For the year, earnings per share rose 68.6%, to $7.03 from $4.17, including a one-time benefit from the U.S. government’s 2017 tax reform act.

Growth stocks: Dividend has been raised for each of the past 35 years

Cintas ended the quarter with cash of $138.7 million. Its long-term debt of $2.5 billion is a low 11% of its market cap.

The company has raised its dividend each year for the past 34 years. Cintas pays the dividend once a year (in 2017, the payment date was December 8). Currently, the $1.62 dividend yields 0.8%.

The company should earn $7.17 a share in fiscal 2019. The stock, which has jumped 58% in the past year, trades at a high, but still acceptable 30.0 times that estimate. As well, the 2017 cuts to U.S. corporate tax rates will give its clients more cash to spend on Cintas’s services.

Recommendation in Wall Street Stock Forecaster: Cintas is a buy.

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