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'Uniformly' Cheap

January 01, 2008 | About:
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.



About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.1/5 (18 votes)

Comments

climb1212
Climb1212 - 6 years ago
"The way I see it, there are really only four economic moats that are hard to duplicate, and thus, long-lasting. One source would be economies of scale and scope. Wal-Mart is an example of this, as is Cintas in the uniform rental business . . . " - Mark Sellers.

Interesting idea Stockdox. I just read an interesting speech by Mark Sellers the other day so I thought it ironic that you've discussed Cintas. Thought I would post his quote.

Thanks for all the ideas.


fan3
Fan3 - 6 years ago
Does Cintas have a lot of pricing power in the uniform rental business? Not really - according to management.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Whenever you are the dominant player with huge economies of scale, you have a pricing edge. Few other companies have the infrastructure to 'take over' Cintas' contracts.
DaveinHackensack
DaveinHackensack - 6 years ago
StockDocx,

You've posted a lot of stock ideas recently. Do you own all of these or are you just tossing ideas around? If not, which ones do you actually have money invested in?
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Anything I like well enough to write-up, I also own.
vooch
Vooch - 6 years ago
stockdocx99,

How many stocks do you own?

- Vooch

tmmjs
Tmmjs - 6 years ago
FYI, Morningstar give CTAS a "wide moat", "low risk", A for profitability, A financial stability and an A for stewardship - about as good as it gets according to Morningstar. It also puts CTAS intrinsic value at $47. CTAS lost almost 4% today. I've been a buyer recently and will continue buying at this price and lower.
kbodawala
Kbodawala - 6 years ago
Stockdocx99,

I appreciate your thoughts and generally agree with your short term contrarian views that are more long term oriented. That is why I would like you to do a write up on Carnival cruises. I believe this is a company that would fit your investment criteria. Lots of headline risk but a dominant company in a rapidly growing industry. Also let us not forget that with Buffet's purchase of Marmon he is one of the largest shareholders in Royal Caribbean. Again Buffet is a secular investor and the cruise industry is a secular investor's dream. Growth along with a dupoloy which allows both competitors to achieve high returns on capital as they are not competing on price but rather service. Thanks.
kirrct
Kirrct - 6 years ago
stocdocx99, if I understand you correctly, you state that you own everything you write up but you also had the disclosure below on your yrcw post and you have logged two write ups since Oct on yrcw. would yrcw be the exception?

"Full Disclosure: I am not currently long YRCW, but have placed it on a watch list for potential future purchase."

Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
If you'll read the beginning of the post you'll see it was reprinted here from a third party source- it was specifically NOT identified as my write-up.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
That relates to the YRCW article.
munger
Munger - 6 years ago
Not cheap enough for me at this point. The doc shred biz is very fragmented and there is opportunity to consolidate the service.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Cintas raised their dividend again this week.
mungerite
Mungerite - 6 years ago
anyone have any ideas on this

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