On Jul 9, we reiterated our Neutral recommendation for
business services provider
). The company's diligent execution of operational plans and
strategic decision to extend its global footprint, through
continuous organic growth across the industry verticals, augur
well for its growth prospects. However, an increase in raw
material costs along with weak economic conditions prevailing in
the global scenario could weigh on the margins moving forward.
Cintas aims to continually hike revenue streams by increasing
businesses from existing customers and broadening customer base
by including new business segments. The company also identifies
additional product and service opportunities for its current and
future customers to augment its product portfolio.
In order to increase market penetration, Cintas has a highly
talented and diverse team of service professionals who regularly
visit customers. These frequent contacts with existing customers
strengthen personal relationships, which consequently provide a
platform to launch additional products and services.
In order to pursue its strategy of broadening customer base,
Cintas has a national sales organization that introduces its
products and services in all business segments. The company
also broadens its customer base through geographic expansion, and
focuses particularly on emerging businesses of first aid and
safety, fire protection and document management. Additionally,
strategic acquisitions at opportune times also help the company
to expand. This focused approach for a steady top-line
growth is commendable.
Cintas reported an organic revenue growth of 6.9% in fiscal third
quarter 2013, including 5.5% organic growth from Rental Uniforms
and Ancillary Products due to improvements in productivity of
sales representatives and an overall increase in the number of
sales representatives. Sales productivity improvements are
generally the culmination of increased tenure and advanced
training procedures of sales personnel, which in turn result in a
higher number of products and services sold.
During recession, Cintas had taken initiatives to enhance its
operations by evaluating sales force productivity, optimizing
routes and streamlining labor overhead. The company returned to
year-over-year rental organic revenue growth in mid 2010 and has
continued the growth trajectory since then. Organic growth from
the Other Services segment was also healthy at 10.5% in the last
reported quarter, largely due to growth in each of the operating
segments and accretive acquisitions. All these indicate solid
growth momentum for the company.
However, a continuous increase in raw material costs such as
cotton, due to global headwinds, may weigh on the margins going
forward. Cintas procures raw materials from a wide variety of
domestic and international suppliers, making it susceptible to
market risks which are beyond its control.
Other Stocks to Consider
Cintas presently has a Zacks Rank #3 (Hold). Other companies in
the industry worth reckoning include
Macquarie Infrastructure Company LLC
Heartland Payment Systems, Inc.
), each carrying a Zacks Rank #2 (Buy).
CINTAS CORP (CTAS): Free Stock Analysis
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