Cintas (CTAS) shows good prospects, headwinds remain

On December 15, we published an updated research report on Cintas Company ETG.

Over the past six months, this Zacks Rank #3 (Hold) stock has returned 30.5% versus industry growth of 27.5%.

Current scenario

Cintas is poised to benefit from the gradual reopening of the majority of its customers’ businesses over the coming quarters. Additionally, the strength of the company’s health and hygiene end markets, driven by strong demand for its personal protective equipment, bodes well for its performance. This, together with the focus on improving the product portfolio, the strength of the supply chain and the distribution network, is likely to act as a tailwind.

Additionally, Cintas is focused on expanding its market share, product offerings and customer base through acquisitions. For example, its acquisition of Doritex Corp (February 2020) strengthened its offerings and customer base across Buffalo and the surrounding Western New York region. In particular, it invested $53.7 million in acquisitions in fiscal 2020 (ended May 2020), an increase from the $9.8 million used for buyouts in the prior fiscal year.

In addition, he remains committed to generously rewarding shareholders through dividend payments and share buybacks. In fiscal 2020, the company used $268 million to pay dividends and repurchase shares worth $464.5 million.

However, the difficult demand environment due to the issues related to the coronavirus epidemic could weigh on its overall performance in the short term. For the second quarter of fiscal 2020 (ending November 2020), the company forecasts revenue of $1.725 billion to $1.750 billion, suggesting a decline of 5.1 to 6.5 percent on an annual basis.

In addition, the company’s high debt profile is problematic. For example, over the last five fiscal years (2016-2020), its long-term debt has increased by 19.5% (CAGR). Notably, the metric remained high at $2,290.4 million at the end of the first quarter of fiscal 2021 (ended August 2020). Any further increase in the level of indebtedness may increase the financial obligations of the company.

Key Choices

Some top-ranked stocks in the Zacks Industrial Products sector are Altra Industrial Motion Corp. AIMC, Applied Industrial Technologies, Inc. AIT and Dover Corporation DV. While Altra Industrial currently sports a #1 (strong buy) Zacks rank, Applied Industrial and Dover have a #2 (buy) Zacks rank. You can see the full list of today’s Zacks #1 Rank stocks here.

Altra Industrial has achieved a positive earnings surprise of 50.07%, on average, over the past four quarters.

Applied Industrial has recorded a positive earnings surprise of 14.68%, on average, over the past four quarters.

Dover has recorded a positive earnings surprise of 18.10%, on average, over the past four quarters.

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Cintas Corporation (CTAS): Free Inventory Analysis Report

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