Cintas Corporation ($CTAS), a leading uniform supplier, is anticipated to surpass expectations for its fiscal first quarter, according to analysis from RBC Capital Markets. Furthermore, the firm may adjust its full-year earnings guidance upward, though it is suggested that quarterly incremental margins could align at the lower end of the management's anticipated range. RBC analyst Ashish Sabadra articulated in a recent note that Cintas has consistently been a 'beat-and-raise story', a trend likely to persist into the August quarter.
RBC maintains a 'sector perform' rating on Cintas, coupled with a price target of $725 per share, indicating a potential downside from the current share price observed at $813.22 in late afternoon trading. The brokerage has projected quarterly revenues to reach $2.5 billion, slightly exceeding the consensus estimate of $2.49 billion.
Notably, Sabadra indicated that it would not be unexpected for Cintas to outperform these projections. RBC’s estimate for earnings per share (EPS) stands at $4.07, surpassing the market's expectation of $4.02. Sabadra emphasized that due to Cintas’s solid execution, its focus on recession-resistant verticals, and cross-selling strategies, the company is well-positioned to achieve superior revenue growth relative to the industry average.
Although Cintas has not yet confirmed the date for its first-quarter earnings announcement, it reported results on September 26 in the previous fiscal year. For the first quarter, RBC anticipates that incremental margins will likely fall within the lower end of the management's provided guidance of 25% to 35%.
This expectation stems from the influence of having one less working day in the quarter, which is expected to impose a headwind of approximately 30 to 40 basis points on the margins. Moreover, the current research report suggests that a potential slowdown within the labor market alongside normalizing pricing conditions may begin to exert pressure on Cintas's organic growth trajectory.
Sabadra notes that Cintas is more inclined to elevate its full-year EPS guidance from the current forecast range of $16.25 to $16.75 rather than adjusting the organic revenue growth forecast, which stands at 6.4% to 8%. Reflecting on Cintas's performance, the company has demonstrated organic revenue growth figures of 12.2% for fiscal year 2023 and an anticipated growth rate of 8.1% for fiscal year 2024, leading Sabadra to deem the upper limits of management's revenue range as 'appropriate'. The anticipated EPS growth is expected to be bolstered by share buybacks, beneficial mergers and acquisitions, in addition to operational leverage, according to RBC's analysis. Current share price: $813.27, Change: -3.15, Percent Change: -0.39..