Cintas Corp. [NDQ:CTAS] Dec. 31, 2007 Close: $33.62 Yield = 1.16%
52-week range: $31.14 - $42.89
Cintas is the largerst provider of uniforms in North America, provides Document Management services and also rents cleaning and fire protection equipment. If estimates for the FY ending May 31, 2008 are on target, the company will be finishing it's 17th consectutive record year in terms of EPS.
Cash Flow, Revenues, Book Value and Dividends have also kept pace with sustainable growth over those 17 years. Slowing of the rate of increase has sent the P/E multiple on CTAS shares to the lowest level in recent memory- just 15.4X this FY's estimate of $2.18/share. With the consensus view at $2.41 for the following FY the forward P/E is an even more modest 14X.
Cintas's 10-year median P/E has been 30X but Value Line is assuming a 20 multiple for the coming 3 - 5 year horizon. That would bring me to a target price of $48.20 over the next 17 months - a gain of > 43% plus dividends from the current quote.
Value Line rates CTAS a B++ for financial strength and puts it in the top 1% for 'earnings predictability'. Total interest coverage is a very healthy 11.4X.
Cintas has approved a $420 MM stock buyback plan. From 2004 through 2007 the absolute share count was reduced from 171.38 MM to around 155 MM showing that the company has followed through on its previously announced share repurchases.
While uniform rentals dominate the picture, the First Aid and Fire Saftey segment grew nicely last year and now accounts for about 11% of total revenues. This adds an extra kicker to the core business.
Document Management is another potential growth area that Cintas is just starting to ramp up in both North America and in Europe.
With Cintas shares now trading close to 7-year lows and at a very modest valuation, I have been a buyer recently. These shares hit highs of $44.30 - $56.60 at some point in each calendar year from 1998 - 2006 and were $42.90 last February. Contrary to what you would guess from the depressed share price...every measurable category - sales, c/f, eps, dividends, and b/v -hit all-time highs this year.
The absolute low share prices were $39.50, $37.50 and $34.60 in 2004, 2005 and 2006 respectively meaning CTAS shares are now trading below their lows for that three-year period.
With well-defined upside of 40% - 60% and what appears to be limited risk, these shares look very attractive right now.
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