(CTAS) Cintas Analyst Maintains Neutral on Shares

Cintas Corporation (CTAS), providing specialized services to businesses of all types throughout North America retains a ‘Neutral’ rating. The company designs, manufactures, implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products and first aid and safety products for approximately 800,000 businesses. Cintas operates under two operating segments, Rental Uniforms and Ancillary Products and Other Services.

Cintas in its last reported quarter delivered an EPS of 41 cents surpassing the Zacks Consensus Estimate of 36 cents and 32 cents reported during the prior-year quarter. Cintas’ total revenue increased 8.8% to $937.8 million in the reported quarter, outperforming the Zacks Consensus Estimate of $909 million and $861.8 million in the year-earlier quarter. The improvement in revenue can be attributed to continued momentum in sales productivity and customer retention.

Cintas pursues an aggressive share repurchase policy. Although the company did not purchase any shares during the last quarter, it repurchased $203.2 million worth of shares in the first six months of the fiscal year. The company is still authorized to purchase $500 million shares under its new share repurchase program.

Encouraged by its third quarter performance, Cintas upgraded its guidance for fiscal 2011. The company now expects full year revenues in the range of $3.75 billion–$3.77 billion, up from the previous range of $3.55 billion–$3.75 billion. However, there is no change in the EPS guidance of $1.60–$1.63, as management expects an increase in gasoline and diesel cost to negatively impact its fourth quarter results.

Besides, Cintas recently announced a strategic alliance with Diversey Inc. – a leading global provider of commercial cleaning, sanitation and hygiene solutions – to further strengthen its position in the services industry. The alliance has developed a service called Signet, which combines the industry-leading green chemicals with the excellent service of Cintas to provide customers fully integrated management of their cleaning and hygiene needs.

Cintas has formulated a long-term strategy in order to maximize revenue growth for all the products and services it offers by penetrating the existing customer base as well as entering unexplored markets. For proper implementation of the strategy, the company has evolved a highly talented team of professionals that visits customers on a regular basis. This creates a personal relationship with consumers and enables the company to introduce new products and services.

However, Cintas’ revenue largely depends upon the service industry, including hotels, airlines, restaurants, etc. Any drop in the employment rate has the potential to adversely impact the company’s profitability. Besides, Cintas faces competition from national, regional and small local players that are targeting its markets.

These players at times target the markets at the expense of margins, thereby negatively affecting Cintas’ results. Moreover, Cintas draws 70% of revenue from its core uniform rental segment, which is in the saturation stage.

The company is constantly making efforts to innovate and focus on its other businesses, including direct uniform sales, first aid safety, fire protection and document management. However, in doing so, the additional resources and time involved in developing these growing segments may threaten Cintas’ profitability. Thus, the reasons above explain the Neutral recommendation of Cintas.

Cincinnati, Ohio-based Cintas Corporation designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, promotional products, and first aid and safety products for approximately 800,000 businesses. Cintas competes with G&K Services Inc. (GKSR), UniFirst Corp. (UNF) and privately held Alsco Inc. and ARAMARK Corporation. Cintas currently retains a Zacks #3 Rank (short-term Hold rating).

CINTAS CORP (CTAS): Free Stock Analysis Report

G&K SVCS A (GKSR): Free Stock Analysis Report

UNIFIRST CORP (UNF): Free Stock Analysis Report

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