Cintas Earnings: We Raise Our Fair Value Estimate by 4% After Strong Results

Wide-moat-rated Cintas CTAS reported strong fiscal 2023 fourth-quarter results. We raise our fair value estimate to $400 from $384, driven by the time value of money and the firm’s above-expectations full-year performance. We believe it remains well-positioned to navigate tough macroeconomic environments, and we are optimistic about its long-term strategic focus on margin expansion and technology investments. That said, we still think the stock remains overvalued.

Total revenue for the quarter reached $2.28 billion, bringing sales for the full fiscal year to a record $8.82 billion. We see strong performance across all segments, driven by recent higher-than-historic pricing, persistent customer demand, and aggressive sales efforts to onboard new programmers and to cross-sell. The uniform rentals segment posted a year-on-year revenue increase of 10.8%. Sales for first aid and safety increased 14.3%; while the “all other” segment was up 21.6%, with both the fire protection business and uniform direct sales showing strong organic growth of 17.3% and 11.5%, respectively. However, lower inflation will force Cintas to edge back to its historical price level. We already see signs of slowing revenue growth, evidenced by the uniform rentals segment revenue only increasing by 8.8% in the fourth quarter. This stands as the segment’s slowest growth rate out of the past six quarters. Hence, management guides a slower revenue growth companywide (around 7%) in fiscal 2024.

We believe Cintas’ margin improvements should more than offset the weaker prices, thus maintaining high profits. Operating margin reached an all-time high at 20.4% and is expected to improve incrementally. Cintas has been shifting toward a higher-margin business mix in this postpandemic time, such as selling more first aid cabinets instead of personal protective equipment. Moreover, the firm diversifies its supply chain by sourcing from multiple vendors, which strengthens the firm’s bargaining power with suppliers.