We are launching coverage of Cintas Corp. (CTAS) with a "buy" rating. This well-managed company has a long record of market outperformance and dividend growth, notes John Eade, an analyst with Argus Research — a leading independent research firm.
The company, which provides employee uniforms and workplace safety and cleaning services, saw strong growth prior to the pandemic.
Cintas is well positioned for the future as businesses prioritize employee health and workplace cleanliness during the pandemic and outsource noncore tasks such as laundry services and the maintenance of hand sanitizer stations.
Investors have recognized the company’s potential, and the shares have a long history of outperforming the industry and the broad market. On a technical basis, prior to the pandemic, the shares had been in a long-term bullish pattern of higher highs and higher lows dating back to 2009.
Turning to our estimates, and based on management’s 2Q21 guidance as well as the potential impact of the coronavirus on 2Q and 3Q results, we are establishing an FY21 EPS estimate of $8.90. Our estimate implies growth of 10% from last year’s $8.11. We expect growth to continue in FY22 and are setting an EPS estimate of $9.75.
We think that CTAS shares are attractively valued at recent prices near $335, toward the high end of their 52-week range of $155-$344. Prior to the pandemic, they had been in a long-term bullish pattern of higher highs and higher lows since 2009.
Compared to the industry , the shares are trading at premium multiples, which we think are warranted given the company’s strong balance sheet and experienced management team. Our dividend discount model renders a value above $400 per share. Blending our approaches, we arrive at a 12-month target price of $360.
