Cincinnati, Ohio-based uniform maker Cintas Corp. reported better-than-expected earnings in the fiscal second quarter and lifted its 2022 revenue and profit forecast.
The company reported earnings per share (EPS) of $2.76, beating the market expectations of $2.62 per share. Revenue for the second quarter of fiscal 2022 increased 9.4% to $1.92 billion compared to $1.76 billion in last year’s second quarter. That also topped the Wall Street consensus estimates of $1.9 billion.
“Wide-moat Cintas reported fiscal 2022 second-quarter earnings that were ahead of what was implied in our full-year expectations. We expect to increase our fair value estimate by a high-single-digit percentage due to increased revenue and the time value of money. Total revenue grew 9.4% year over year, and we are impressed with management’s continued efforts to improve its top line,” noted Joshua Aguilar, equity analyst at Morningstar.
Centas predicts revenues of $ 7.63-$ 7.70 billion for fiscal 2022, which ends in May 2022, up from $ 7.58-$ 7.67 billion previously expected. As a result, earnings per share are expected to reach $10.70-$10.95, compared with $10.60-$10.90 previously forecast.
However, Cintas stock closed 1.81% lower at $428.89 on Wednesday. It soared over 20% so far this year.
“What to do with Cintas (CTAS) shares: Buy more if you think the company can expand operating margins at the high end or above previously implied 0-70bps y/y range (after expanding by ~310bps last year from pre-pandemic levels) despite a challenging inflationary environment. We also think the strong balance sheet and high FCF generation create positive portfolio catalysts such as more M&A (and potentially a larger deal) and increased buybacks,” noted Hamzah Mazari, equity analyst at Jefferies.
Cintas Stock Price Forecast
Seven analysts who offered stock ratings for Cintas in the last three months forecast the average price in 12 months of $421.57 with a high forecast of $475.00 and a low forecast of $365.00.
The average price target represents a -1.71% change from the last price of $428.89. Of those seven analysts, four rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $399 with a high of $673 under a bull scenario and $242 under the worst-case scenario. The firm gave an “Equal-weight” rating on the uniform maker’s stock.
“Revenue now ~4% above pre-COVID levels as F2Q EPS came in above MSe though this was primarily driven by tax, with operating income missing our forecast. FY22/FY23 EPS ests largely unch. PT to $399, but valuation fair in our view; stay EW,” noted Toni Kaplan, equity analyst at Morgan Stanley.
“We think fundamentals will perform well in a cyclical recovery given CTAS‘ recent history of outperforming labour growth. MS economists are forecasting significant employment growth in coming quarters, with the ending 2022 unemployment rate in-line with 2019 levels. With a strong balance sheet, potential M&A could be extremely accretive to CTAS earnings. Though valuation is high relative to history, we do not see a near term catalyst to cause the multiple to contract.”
Several other analysts have also updated their stock outlook. Jefferies raised the target price to $492 from $448. Credit Suisse lifted the price objective to $425 from $385. RBC upped the target price to $475 from $450. Stifel increased the target price to $378 from $365.
Technical analysis suggests it is good to buy now as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.
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