Cintas Stock Forecast [50% Haircut Pending?]

Cintas Stock Forecast: There’s a lot to consider when you operate a company, no matter what industry you are in. Managers are often frustrated by the fact that many to-do list items aren’t even related to core business activities.

To start with, there are uniforms to buy, facilities to maintain, and regulations that require your compliance. A miss on any of these peripheral tasks can threaten your ability to produce the products and services that generate revenue.

It’s common for businesses of every size to outsource some support functions to expert vendors who specialize in those tasks. For example, building security, IT services, payroll, and benefits administration are regularly assigned to third parties, because they are so complicated and time-consuming to manage.

As businesses discover the benefits of assigning support services to outside specialists, the companies that offer such services are growing and expanding. There is plenty of profit to be made in managing the tasks mentioned above, as well as less complex but equally time-consuming activities like designing and issuing uniforms, establishing procedures in case of fire emergencies, and organizing safety training.

Launched in 1929 as Acme Industrial Laundry Company, Cintas was a pioneer in this industry. Today, it is part of the S&P 500. Cintas share prices enjoyed a substantial rise in 2019, leaving new investors curious. Is Cintas stock a buy, or has it reached its peak?

Cintas Is THE 3rd Party Uniform Manufacturer

Though Cintas [NASDAQ: CTAS] started off as an industrial laundry, it has grown and expanded to provide a variety of support services to companies of all sizes. It is particularly popular in industries like food service, hospitality, automotive, and healthcare, and it has a number of large government clients.

Much of the company’s revenue comes from the design and manufacture of uniforms, but that isn’t its sole line of business.

Cintas also handles all of the details necessary to be “Ready for the Workday”, including restroom supplies and cleaning, carpet and tile cleaning, first aid and safety training and supplies, and products and services designed to protect people and property from the threat of fire.

And… It’s An Industry Behemoth

Cintas has been publicly traded since 1983, and it is one of the largest providers of business services with 41,000 employees and a market cap of $22.3 billion.

Cintas celebrated its one-millionth customer in 2013, and today the company owns more than 11,000 product and service distribution routes.

Cintas makes regular appearances on all sorts of “Best Of” and awards lists, thanks to its ongoing commitment to being an employer-of-choice. In the past two years alone, Cintas was recognized on the following Forbes lists:

  • America’s Best Employers By State 2019
  • Global 2000 2019
  • America’s Best Employers 2019
  • Best Employers for Diversity 2019
  • Best Employers for New Grads 2018
  • America’s Largest Public Companies 2018

Years of growth haven’t diminished leaders’ passion for exploring new opportunities. The company’s current goals include expanding its market share, and it has concrete plans to get this done. For example, Cintas has determined that approximately 60 percent of new business is with customers who weren’t already in a rental program, and Cintas’ current client list includes just one million of the 16 million North American businesses.

The company is in hot pursuit of partnerships with those outstanding 15 million, and its strategic plan appears to be viable.

All of this good news boosted share prices substantially in 2019, but does that mean more success in 2020? In other words, what is the Cintas stock forecast and is it worth investing in?

Is Cintas Stock a Buy?

On December 17, 2019, Cintas [NASDAQ: CTAS] announced results for its fiscal second quarter 2020, which ended November 30, 2019.

Year-over-year, the quarter revenue went up 7.3 percent to a total of $1.84 billion. The quarter’s net income came in at a total of $246.4 million, up from $243 million the previous year, and earnings per diluted share were reported at $2.27, up from $2.18.

During the earnings call, management mentioned that the company’s annual dividend was paid on December 6th in the amount of $2.55 per share. That figure represents an increase of 24.4 percent over the previous year – and it was the 36th consecutive year that the annual dividend went up.

The best news for investors came in the form of increased financial guidance for fiscal 2020. Cintas announced that annual revenue expectations, originally projected at $7.28 billion to $7.32 billion, would instead be between $7.29 billion to $7.33 billion.

Guidance for annual earnings per share rose from a range of $8.47 to $8.57 to between $8.65 and $8.75.

Those figures represent total revenue growth of 6 percent for full-year fiscal 2020, which for Cintas ends in May. If the expected growth is realized, earnings will increase by approximately 15 percent.

Overall, most analysts rate Cintas a strong buy, but there are a few detractors who don’t see things quite the same way. What risks are they concerned with in the coming 12-month period?

What are the Risks of Buying Cintas?

Ben Axler, Spruce Point Capital Management’s founder and chief investment officer, is convinced that Cintas shares are on the brink of losing half their value.

He believes that fierce competition for fire protection services will pull market share away from Cintas, which he says is particularly vulnerable in this area due to allegations of fraud.

He explains that the company has been charged with fraudulent business practices in Illinois for allegedly employing fire safety inspectors with falsified documents.

Axler also indicates that he thinks Cintas overpaid for its 2017 acquisition of G&K Services, and that the integration of this new business isn’t going as smoothly as business leaders are leading investors to believe.

He accuses Cintas of manipulating financials to give the appearance of growth, which has resulted in over-valued shares.

While these allegations are concerning, it is important to keep in mind that Spruce Point Capital Management makes its money through short sales. In other words, it profits when stock prices go down. That gives Axler a strong motive to amplify the company’s issues.

Cintas leadership responded to the report with a flat denial that financials have been manipulated, and the company emphasized that Axler’s report is, in fact, an attempt to drive down share prices for his own benefit. For the moment, it isn’t quite clear which interpretation of the facts is most accurate.

Cintas Stock Forecast Summary

The bottom line is that Cintas [NASDAQ: CTAS] has a long history of success, and there is every indication that the company will continue to grow in value.

While there are risks with any investment, most analysts aren’t giving much weight to Axler’s predictions.

For the moment, Cintas appears to be a smart buy, though investors with concerns may wish to conduct additional research before going all-in on Cintas stock.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.