Cintas Corp. reports preliminary financial results for the quarter ended 2012-08-31.
Cintas Corp. (CTAS) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Cintas Corp.’s analysis versus peers uses the following peer-set: Rentokil Initial PLC (RTO-GB), Berendsen PLC (BRSN), Healthcare Services Group Inc. (HCSG), UniFirst Corp. (UNF), ABM Industries Inc. (ABM) and G&K Services Inc. Cl A (GKSR). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2012-08-31||2012-05-31||2012-02-29||2011-11-30||2011-08-31|
|Revenue Growth %||(0.2)||4.1||(0.7)||0.2||0.5|
|Net Income Growth %||(1.4)||2.4||2.3||8.3||(3.0)|
|Net Margin %||7.3||7.4||7.5||7.3||6.7|
|ROE % (Annualized)||14.3||14.4||14.1||14.1||12.4|
|ROA % (Annualized)||7.4||7.4||7.2||7.1||6.5|
Cintas Corp.’s current Price/Book of 2.4 is about median in its peer group. The market expects CTAS-US to grow at about the same rate as its chosen peers (PE of 16.9 compared to peer median of 18.1) and to maintain the peer median return (ROE of 14.3%) it currently generates.
The company attempts to achieve high profit margins (currently 7.4% vs. peer median of 4.1%) through differentiated products. It currently operates with peer median asset turns of 1.0x. CTAS-US’s net margin continues to trend upward and is above (but within one standard deviation of) its four-year average net margin of 6.9%.
Changes in the company’s revenues are in-line with its peers (annual revenue changed by 7.7%) but its earnings performance has been better — its annual earnings changed by 19.7% compared to the peer median of 7.6%, implying that it has better cost control relative to its peers. CTAS-US currently converts every 1% of change in revenue into 2.6% of change in annual reported earnings.
CTAS-US’s return on assets is above its peer median both in the current period (7.4% vs. peer median 4.5%) and also over the past five years (6.7% vs. peer median 4.1%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s comparatively healthy gross margin of 46.2% versus peer median of 36.3% suggests that it has a differentiated strategy with pricing advantages. Further, CTAS-US’s bottom-line operating performance is better than peer median (pre-tax margins of 11.7% compared to peer median 6.3%) suggesting relatively tight control on operating costs.
Growth & Investment Strategy
CTAS-US’s revenues have grown at about the same rate as its peers (2.8% vs. 2.8% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 16.9. The historical performance and long-term growth expectations for the company are largely in sync.
CTAS-US’s annualized rate of change in capital of 2.8% over the past three years is around its peer median of 2.6%. This median investment has likewise generated a peer median return on capital of 7.4% averaged over the same three years. This median return on investment implies that the company is investing appropriately.
CTAS-US has reported relatively strong net income margin for the last twelve months (7.4% vs. peer median of 4.1%). This strong margin performance was accompanied by a level of accruals that was around peer median (4.9% vs. peer median of 4.9%) suggesting that the reported net income is supported by a reasonable level of accruals.
CTAS-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.