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 |
---|---|---|---|---|---|
Revenues | 1,051.3 | 1,053.6 | 1,012.1 | 1,019.1 | 1,017.2 |
Revenue Growth % | (0.2) | 4.1 | (0.7) | 0.2 | 0.5 |
Net Income | 76.7 | 77.8 | 76.0 | 74.4 | 68.6 |
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 |
Valuation Drivers
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%.
Economic Moat
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.
Earnings Quality
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.