Cintas (CTAS +1.32%) will release its quarterly report on Thursday, and investors have already bid the company's shares to levels not seen in nearly a decade. If Cintas earnings turn out to be favorable, then shareholders could easily see new all-time record highs for the company.
Cintas doesn't have a glamorous business, with its business services including uniform rental and sales as well as office cleaning services and supplies. Cintas also helps with safety and fire protection for its corporate clients, as well as with document management. But that somewhat unexciting business has made Cintas a Dividend Aristocrat, with a 30-year track record of raising its payouts every year. Let's take an early look at what's been happening with Cintas over the past quarter and what we're likely to see in its report.
Stats on Cintas
|
Analyst EPS Estimate |
$0.63 |
|
Change From Year-Ago EPS |
5% |
|
Revenue Estimate |
$1.10 billion |
|
Change From Year-Ago Revenue |
4.9% |
|
Earnings Beats in Past 4 Quarters |
2 |
Source: Yahoo! Finance.
How far can Cintas earnings grow this quarter?
Analysts have clamped down on their views on Cintas earnings in recent months, with reductions of $0.04 per share for the August quarter and $0.06 per share for the full 2014 fiscal year. The stock hasn't been affected by those cuts, though, with shares rising another 11% since mid-June.
Looking at Cintas' May-quarter report reveals some of the competing factors that are pushing and pulling the business in both directions. On one hand, net income for the quarter rose 9%, with a 7% jump in revenue that was consistent with what investors had expected to see. But Cintas wasn't as enthusiastic about its future, citing the uncertain impact of Obamacare on the hiring decisions of its customers. Since Cintas relies on its clients' willingness to bring on personnel who need its uniform services, any threat to employment potentially hurts Cintas as well. Guidance for fiscal 2014 also came in below analyst projections, hurting the stock.
But Cintas is aiming to keep rewarding shareholders. On top of its steadily rising dividend, it also approved a $500 million stock buyback in late July, adding to the remaining $150 million from its previous buyback authorization. The company has been relatively opportunistic in its share repurchases, with an average buyback price since October 2011 that's fully 20% below the current level of the stock.
One big competitive advantage for Cintas is the one-stop shop nature of its business. For instance, in safety services, Tyco (TYC +0.00%) and 3M (MMM 0.54%) both make a wide variety of fire detection and safety products for both residential and commercial use. Yet neither Tyco nor 3M builds the close relationship with clients that Cintas does, as Cintas can serve many other needs at the same time and offer a complete package, giving it a huge edge that helps pay long-term dividends.
In the Cintas earnings report, watch to see how effective the company is at cross-selling its services. With its array of different service areas being one of its greatest assets, any ability for Cintas to keep boosting its sales to existing customers would be a sign of confidence for the long-term prospects of the company.
Click here to add Cintas to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
