Morningstar

Cintas: Integration Will Be Dominant Theme, Short-Term

The G&K Services acquisition offers upside potential to our fair value on this wide-moat uniform rental specialist.

Securities In This Article
Cintas Corp
(CTAS)

In its fiscal third-quarter 2017 (ended February), wide moat-rated uniform rental specialist

On an organic basis, the core uniform rental business expanded 7%, which was ahead of the 6.2% posted in the first half of the firm’s fiscal year. Pressure from oil and gas end-market customers, which shed headcount over the past year-plus, is diminishing, and Cintas is firing on all cylinders in terms of adding new programmers and boosting account penetration with ancillary services, especially among services-sector customers. The “all other” segment (which includes the lumpy direct-uniform sales unit and fire-protection services) was up 2.4% organically, while the first aid business posted 5.5% underlying expansion. First aid growth accelerated from 3.3% last quarter as the division is beginning to realize benefits from its Zee Medical integration efforts over the past year.

Excluding G&K-related transaction costs, Cintas’ consolidated operating margin was roughly flat year over year, at 15.9%--a solid showing considering lost leverage from one less workday during the quarter and increased energy costs.

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About the Author

Matthew Young, CFA

Senior Equity Analyst
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Matthew Young, CFA, is a senior equity analyst, AM Industrials, for Morningstar*. He covers transportation and logistics firms. Young is responsible for conducting in-depth fundamental research and valuation analysis, while generating investment recommendations and value-added insights for institutional buy-side and advisory clients. Key coverage sectors include the Class-I railroads, integrated parcel delivery (FedEx, UPS), trucking, and asset-light freight forwarding (C.H. Robinson, Expeditors International). Young has also covered companies across the commercial services, waste management, and financial services industries.

Before joining Morningstar in 2010, Young spent five years as an equity research associate at William Blair, where he covered logistics and commercial-services firms. In this position, he was responsible for conducting fundamental analysis, valuation modelling, and writing earnings notes and ad hoc reports.

Young holds a master’s degree in business administration, with concentrations in finance and accounting, from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation. Young holds a bachelor’s degree in psychology and communications from Wheaton College.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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