Cintas (CTAS) Stock Holds Promise Despite Cost Headwinds
Cintas Corporation CTAS is witnessing growth across all its segments. CTAS’ top line increased 10.4% and 13.7% year over year in fiscal 2022 and the first six months of fiscal 2023, respectively.
The Uniform Rental and Facility Services segment is benefiting from increased volumes and higher prices. Revenues from the unit rose 9.4% and 12% year over year in fiscal 2022 and the first six months of fiscal 2023, respectively. Strength across the first aid cabinet service business is boosting the First Aid and Safety Services segment’s performance. Revenues from the segment climbed 6.1% and 17.2% in fiscal 2022 and the first six months of fiscal 2023, respectively.
Cintas is also seeing strong growth across its uniform direct sale (33.9% organic growth in fiscal second quarter) and fire protection services (18% organic growth in fiscal second quarter) businesses.
Cintas Corporation Price and Consensus
Cintas Corporation price-consensus-chart | Cintas Corporation Quote
Cintas’ improved fiscal 2023 outlook raises optimism in the stock. The company now expects revenues of $8.67-$8.75 billion in fiscal 2023 compared with $8.58-$8.67 billion anticipated earlier. Earnings are estimated to be in the range of $12.50-$12.80 per share compared with $12.30 to $12.65 expected earlier. For fiscal 2023, Cintas expects adjusted operating income between $1.75 billion and $1.79 billion ($1.55 billion reported in fiscal 2022).
Cintas' focus on enhancement of its product portfolio, along with investments in technology and existing facilities, should continue to drive its performance. Also, its focus on operational execution, cost-control measures and pricing actions is helping it maintain healthy margin performance. For instance, in the fiscal second quarter, gross margin increased 100 basis points to 47%.
Cintas’ measures to consistently reward shareholders through dividends and share repurchases are encouraging. In the first six months of fiscal 2023, the company repurchased shares worth $348.68 million and paid dividends of $215.01 million. In fiscal 2022, the company repurchased shares worth $1.53 billion, up from $554.12 million in the year-ago period. Dividend payments totaled $375.12 million in fiscal 2022. Owing to strong performance in fiscal 2022, the company hiked its quarterly dividend by 21.1% to $1.15 per share in July 2022. Cintas has consistently raised its dividend for 39 straight years.
On the flip side, Cintas, carrying a Zacks Rank #3 (Hold), has lately been enduring labor shortages and the adverse impacts of high costs and expenses. In the first six months of fiscal 2023, its cost of sales (comprising costs related to uniform rental and facility services as well as others) increased 12.8% year over year to $2.29 billion. High energy expenses are pushing up costs. In fiscal 2022, cost of sales increased 11.1% year over year to $4.22 billion. High labor and purchasing costs drove expenses. Escalating costs and expenses, if not checked, might negatively impact its profitability in the quarters ahead.
Given its vast geographical spread, Cintas is exposed to currency translation risks. A stronger U.S. dollar might depress the company's overseas business results in the quarters ahead.
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