Cintas (CTAS) stock hits a new high. What the future holds

Uniform rental company Cintas Corporation (NASDAQ: CTAS) ended fiscal 2023 on a high note, reporting solid results for the fourth quarter and exuding optimism that the positive trend would continue in the current year. The company bets on its continued focus on the key verticals of healthcare, education, and government to drive growth.

Stock Gains

Last week, the Mason-based firm’s impressive fourth-quarter results spurred a rally and the stock climbed to a record high. CTAS has been one of the best-performing stocks as it effectively weathered the recent market downturn. Considering the high valuation, meanwhile, it is likely to pull back in the coming weeks before regaining strength in the long term. Cintas has raised its quarterly dividend every year since going public — around 40 years in a row, with the most recent hike being 21.1%.

The company is witnessing robust demand across all of its products and services. The top-line benefits from strong volume growth from new customers and increased engagement by existing customers with more products and services. Currently, the main challenge to profitability is elevated SG&A costs as the management continues to invest in selling resources and branding initiatives.

Price vs. Cost

The company has hiked prices to ease the impact of rising input costs but prefers to be flexible in its strategy so that prices can be brought back to historical levels when the cost pressure moderates. Also, increasing efficiencies in production facilities, mainly due to aggressive technology adoption, and the revamped customer portal should help margins going forward.

“We are excited to announce today that we have an additional strategic technology partner with Google, leveraging their Google Cloud platform. As a result of these relationships, it positions us at the forefront of technological innovation. We are still in the very early stages of our digital transformation journey, and we are excited about the impact it will have on our customers and our company in total. We are confident technology will have — will be a competitive advantage for us now and well into the future,” said Cintas’ CEO Todd Schneider at the Q4 earnings call.

Quarterly Results

Cintas has long been beating the market’s earnings estimates, and it was not different in the latest quarter. Fourth-quarter profit rose sharply to $346.2 million or $3.33 per share from $294.5 million or $2.81 per share in the prior-year period. Uniform Rental & Facility Services, the company’s core business that accounts for more than three-fourths of revenues, grew 9% and that translated into an increase in total revenues to $2.28 billion.

The organic growth rate, adjusted for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 10.3%. At 47.7%, gross margin was up 210 basis points from the year-ago quarter. Looking ahead, the management expects fiscal 2024 revenues to be in the range of $9.35 billion to $9.50 billion, which represents a growth rate of 6.1-7.8%. The guidance for full-year earnings is between $13.85 per share and $14.35 per share.

Currently, CTAS is trading well above its 52-week average. The stock, which crossed the $500 mark recently, traded higher in the early hours of Thursday.