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Analyst: Here's Why Cintas Stock Fell Despite A Quarterly Beat-And-Raise

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Analyst: Here's Why Cintas Stock Fell Despite A Quarterly Beat-And-Raise

Cintas Corporation (NASDAQ: CTAS) reported fiscal second-quarter results Dec. 21 and raised both its full-year revenue and EPS guidance. 

The Analyst

William Blair's Tim Mulrooney maintains an Outperform rating on Cintas' stock.

The Thesis

The 2-percent decline in Cintas' stock was "somewhat surprising" when considering the company's strong organic revenue growth of 8 percent in the quarter and the guidance raise, Mulrooney said in a note. (See the analyst's track record here.) 

It is most likely that investors were confused with Cintas' EPS and tax rate guidance, Mulrooney said. 

The guidance may have led some investors to conclude that management lowered its operating margin expectations for the back half of 2018, the analyst said. The company raised its EPS guidance by 9 cents per share and lowered its tax rate estimate from 34 percent to 32 percent.

A 2-percent reduction in the tax rate translates to an EPS gain of around 15 or 16 cents, which adds to the confusion, Mulrooney said. 

After the earnings report, the analyst spoke with Cintas' management and reports the following:

  • Management's EPS guidance of $5.39 to $5.46 is in-line with expectations for a tax rate of 33 percent, which is at the high end of the stated guidance range.
  • Management is "comfortable" with its bottom half of 2018 and does not "intend to signal any change in expectations for companywide profitability."
  • The increase in EPS guidance is a function of outperformance in the fiscal second quarter and a 1-percnet decrease in the company's tax rate.

Price Action

Shares of Cintas were down slightly at the time of publication at $156.36. 

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Latest Ratings for CTAS

DateFirmActionFromTo
Jul 2020StifelMaintainsHold
Jul 2020JefferiesMaintainsBuy
Jul 2020Morgan StanleyMaintainsUnderweight

View More Analyst Ratings for CTAS
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