Morgan Stanley Downgrades Cintas Shares To Underweight

• The share price of Cintas Corporation CTAS has declined 7.76 percent year to date, hitting a low of $80.33 on January 21.
• Morgan Stanley’s Denny Galindo has downgraded the rating on the company from Equal-weight to Underweight, while lowering the price target from $93 to $79.
• Given the cyclical slowdown in the stock and expectations of 5 percent downside, due to a potential slowdown in employment growth, Galindo has downgraded the rating to Underweight.

According to the Morgan Stanley report, “Uniform growth has slowed as our MS Uniform Index has decelerated by 60bps from its February 2015 peak. Generally, the Index turns negative 15 to 25 months after a peak and stays negative for 31-32 months before turning positive.”

Analyst Denny Galindo explained that due to this, he was moving to a more caution “late cycle” stance, while keeping a watch for a rapid decline in the Index, which generally precedes periods when the stock has underperformed.

Galindo also expects several company specific headwinds, such as weakness among energy clients, increased competition and slowing inorganic growth, to pressure the stock.

Although Cintas benefited from lower fuel costs during 1H16, this benefit is expected to reverse in 2H16, with negative top line impacts offsetting fuel savings.

In addition, industry competition is expected to intensify, while acquisitions are likely to “add less to revenue in coming years,” Galindo stated.