Skip to Content
Morningstar

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.

More in Stocks

About the Author

Joshua Aguilar

Director of Equity Research, Resources
More from Author

Joshua Aguilar is the director of resources equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Aguilar joined Morningstar in 2016 as an associate on the financials team, and he was promoted to analyst on the industrials team in 2018 and to senior analyst in 2022. He has served as associates coordinator since 2021 and led Morningstar's diversity efforts as DEI co-chair since 2020. Aguilar has been a mentor to several associates on their paths to becoming analysts. He also has hosted a Morningstar earnings town hall, participated in analyzing Morningstar stock, and been a strong contributor through both client interactions and his General Electric stock call. Aguilar co-authored an Outstanding Research Achievement-winning piece with colleague Kris Inton on CEO compensation in 2021. He also has taught Morningstar's model to new hires for many years as part of the valuation committee.

Before joining Morningstar, Aguilar was a practicing business transactional attorney in Florida. He graduated magna cum laude with a bachelor's degree in political science and criminology from the University of Florida. He also has a Master of Business Administration from Rollins College and a Juris Doctor from Wake Forest University.

Sponsor Center