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Cintas Corporation

Cintas Corporation. An Equity Research Report By: Johnny Fournet. Company Overview. Meets most of LWF criteria Core business is uniform rental services Moving into other service lines, including document management and even cleaning services Very aggressive in acquiring other firms

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Cintas Corporation

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  1. Cintas Corporation An Equity Research Report By: Johnny Fournet

  2. Company Overview • Meets most of LWF criteria • Core business is uniform rental services • Moving into other service lines, including document management and even cleaning services • Very aggressive in acquiring other firms • Uses economies of scale to find success in other market areas

  3. Company Overview, Cont. • Have acquired over 80 businesses in last 2 ½ years • Management ranks highly as a “shareholder steward” • Almost four decades of increasing revenues and profits • 23 years of dividend increases • Top execs have majority of net worth invested in Cintas shares

  4. Industry and Competitive Factors • Profit margin = 9.61% (leading competitors) • 5-year margin = 9.7% • Lead industry in ROA, ROE, and ROC currently and with 5-yr. averages • Cintas dominant with 30% market share • Close competitors (G&K Services, Aramark, and UniFirst) make up 40% • Uniform rental market is maturing • Low power of suppliers and buyers • Few potential entrants

  5. Risks • No one customer makes up more than 1% of total revenues • Aggressively acquiring new businesses • Good – raise value through economies of scale • Bad – get away from core competencies • Two outstanding lawsuits that could hurt reputation and value • Union growth could hurt profitability • Low debt measures and good interest coverage

  6. Valuation and Conclusions • Current P/E = 19.6x • Lower than majority of industry competitors • My estimates for 2010: • P/E = 21x • Selling price = $80 • EPS = $3.80 • Acquisition strategy. economies of scale, and cross-selling should increase value over next 4 years

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