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Cintas Earnings: We Raise Our Fair Value Estimate by 3% After Strong Results


Wide-moat Cintas CTAS reported strong 2024 first-quarter results with growth in all three business segments and in line with our annual forecast. We raise our fair value estimate by nearly 3% to $410 from $400, driven primarily by time value of money and our confidence in the firm’s growth strategy. We’re optimistic given Cintas’ long-term focus on margin expansion, new customer acquisitions, and strategic technological investments. However, we still think the stock is overvalued, as it currently trades in 2-star territory.

Total revenue for the quarter increased 8.1% year on year to $2.34 billion. We see solid growth across all segments, driven by high customer retention, new business offerings, and aggressive cross-selling sales efforts. The uniform rentals segment posted a revenue increase of 7.6%. Sales for first aid and safety increased 11.3%. The “all other” segment was up 8.7%, led by the fire protection business, growing at 16.6%. However, uniform direct sales declined by 5.4%. We think this is temporary. The direct sales business has mostly been a consistent sales grower since first-quarter2022, and it successfully recaptured most of its lost sales from the pandemic. We forecast the subsegment will grow at around a 4% CAGR over the next 10 years.

During the first quarter, moderating inflation forced Cintas to reduce its price increases in line with historical levels, ending several quarters of higher-than-normal pricing. Despite this, increased sales volume and decreased cost of goods sold (as a percentage of revenue) ensured continuous profit growth. Total operating margin increased 110 basis points to 21.4%, marking an all-time high. We expect this figure to improve incrementally as the firm shifts toward a higher-margin business mix. We believe Cintas’ margin improvements should more than offset the weaker price hikes and maintain high profitability.

Clarification: Cintas will be lowering price hikes (in line with historical levels), not reducing pricing.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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