Analyst Note| Joshua Aguilar |
Wide-moat-rated Cintas’ second-quarter results met our expectations. We raise our fair value estimate to $233 per share from $231 due to a slight increase in our assumption for Stage II return on new invested capital. Total second-quarter revenue decreased about 5% year over year, in line with our expectations. Uniform rentals and facilities services decreased 4% year over year, a decline that we attribute to social distancing ordinances in place across the country. Revenue increased 1% sequentially since at this point most of Cintas’ customers are open and operating but at a reduced capacity. Demand for Cintas’ traditional suite of services remains tempered, but the firm now services previously untapped markets such as healthcare, government, and education, revenue from which doubled year over year. Not all of these will persist in the long run, but we see opportunity in the growth of the company's scrub rental program, whose first-half sales have doubled year over year. We expect COVID-19 impacts will slow growth slightly through 2021, normalizing in the fourth quarter due to an easier year-over-year comparison.