The continuing uncertainty and delay in market reopening, amid the resurgence in COVID cases, remain a concern for businesses hit hard by the crisis. Cintas Corporation (NASDAQ: CTAS), a leading provider of uniform rental and facility services, has shown surprising resilience to the pandemic that caused widespread workplace closures.
Unaffected by Crisis
The Cincinnati-based company’s profit increased and beat estimates in every quarter post the virus outbreak. After making steady gains since the last earnings release, the stock climbed to a record high this week and is hovering near the $400-mark. A further upside is in the cards, though modest, for the rest of the year and beyond. A clear trend is expected to emerge after next month’s earnings release, while the majority of analysts remain bullish on CTAS.
Despite the remote-work shift, Cintas’ customers continue to use its products and services, especially essential items like healthcare scrubs, microfiber towels, and disinfectant/sanitizer spray services, as they prepare to reopen the facilities with confidence. The demand for restroom supplies, sanitizer dispenser services, and personal protective equipment like face masks and gloves remains strong.
Cintas is a good reopening investment because there would be an extra focus on cleanliness and workplace safety when companies reopen. Also, the demand for its core uniform rental service should bounce back to the pre-crisis levels once employees start returning to offices. The management’s positive but conservative 2022 guidance underscores the emerging opportunities.
From Cintas’ Q4 2021 earnings conference call:
“The biggest issue that we have is that businesses are open, but there are about 7 million fewer people employed right now than they were pre-pandemic. And so there’s a lot of room there and I think as federal unemployment benefits subside in September, we hope to see that our customers that are open and be able to get themselves back to full staffing, and that’ll obviously benefit our business.”
Though the business has remained largely unaffected so far, thanks to the strong execution, its long-term prospects would depend on how the pandemic plays out in the coming months. The sales of PPEs might decline when the situation improves and the authorities lift restrictions. Until a clearer picture emerges, some prospective buyers would find CTAS’ current valuation unsustainable.
A fruitful Year
The company ended fiscal 2021 on a high note, registering a 13% increase in fourth-quarter revenues to $1.84 billion. Organic revenue growth accelerated to 11.5% during the three-month period, while the uniform business continued to contract. Adjusted earnings surged 83% annually to $2.47 per share. The bottom line benefited from a sharp decline in operating expenses. The key numbers also topped the Street view.
Cintas’ second-quarter earnings announcement is slated for October 14, amid expectations for a modest decrease in adjusted earnings to $2.74 per share on revenues of $1.87 billion, which represents a 7% increase from the year-ago period.
After closing the last session broadly flat, shares of Cintas traded higher in the early hours of Thursday. They have gained 15% in the past six months and mostly stayed above the 12-month average.
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