Cintas Upgraded to Buy - Analyst Blog

On Dec 31, Zacks Investment Research upgraded business services provider Cintas Corporation CTAS to a Zacks Rank #2 (Buy) on the back of solid second quarter fiscal 2014 results and rising earnings estimates.

Why the Upgrade?

Cintas reported organic revenue growth of 7.1% in second quarter fiscal 2014 with a diligent execution of its operational plans. This included 6.4% organic growth from Rental Uniforms and Ancillary Products, primarily due to improvements in productivity of sales representatives and an overall increase in the number of sales workforce. Sales productivity improvements are generally the culmination of increased tenure and advanced training procedures of sales personnel, which in turn result in a higher number of products and services sold.

During recession, Cintas had taken initiatives to enhance its operations by evaluating sales force productivity, optimizing routes and streamlining labor overhead. The company returned to year-over-year rental organic revenue growth in mid 2010 and has continued the growth trajectory since then. Organic growth from the Other Services segment was also commendable, which was driven by growth in each of the operating segments and accretive acquisitions.

With such positive strides, the share prices are continuously moving north and touched a 52-week high of $59.73 during its trading session on Dec 30. Cintas closed the trading session a notch lower at $59.48, reflecting a year-to-date return of 43.7%.

The stock has potential for further accretion with a forward PE of 21.5x and long-term earnings growth expectations of 10.6%. In addition, 9 out of 12 earnings estimate revisions for 2013 have moved up in the past 30 days, while only 1 has moved down. The current Zacks Consensus Estimate for 2013 is pegged at $2.77.

Other Stocks to Consider

Other companies in the industry that warrant a look include Alliance Data Systems Corporation ADS, The ADT Corporation ADT and Higher One Holdings, Inc. ONE, each carrying a Zacks Rank #2 (Buy).