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Cintas Corp. (NASDAQ:CTAS) reports preliminary financial results for the quarter ended 2012-08-31.

Cintas Corp. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Cintas Corp.'s analysis versus peers uses the following peer-set: Rentokil Initial PLC (OTCPK:RTOKY), Berendsen PLC (BRSN-London), Healthcare Services Group Inc. (NASDAQ:HCSG), UniFirst Corp. (NYSE:UNF), ABM Industries Inc. (NYSE:ABM) and G&K Services Inc. Cl A (GKSR). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-08-312012-05-312012-02-292011-11-302011-08-31
Revenues1,051.31,053.61,012.11,019.11,017.2
Revenue Growth %(0.2)4.1(0.7)0.20.5
Net Income76.777.876.074.468.6
Net Income Growth %(1.4)2.42.38.3(3.0)
Net Margin %7.37.47.57.36.7
ROE % (Annualized)14.314.414.114.112.4
ROA % (Annualized)7.47.47.27.16.5

Valuation Drivers

Cintas Corp.'s current Price/Book of 2.4 is about median in its peer group. The market expects Cintas Corp. to grow at about the same rate as its chosen peers (PE of 16.9 compared to peer median of 18.1) and to maintain the peer median return (ROE of 14.3%) it currently generates.

The company attempts to achieve high profit margins (currently 7.4% vs. peer median of 4.1%) through differentiated products. It currently operates with peer median asset turns of 1.0x. Cintas Corp.'s net margin continues to trend upward and is above (but within one standard deviation of) its four-year average net margin of 6.9%.

Economic Moat

Changes in the company's revenues are in-line with its peers (annual revenue changed by 7.7%) but its earnings performance has been better -- its annual earnings changed by 19.7% compared to the peer median of 7.6%, implying that it has better cost control relative to its peers. Cintas Corp. currently converts every 1% of change in revenue into 2.6% of change in annual reported earnings.

Cintas Corp.'s return on assets is above its peer median both in the current period (7.4% vs. peer median 4.5%) and also over the past five years (6.7% vs. peer median 4.1%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's comparatively healthy gross margin of 46.2% versus peer median of 36.3% suggests that it has a differentiated strategy with pricing advantages. Further, Cintas Corp.'s bottom-line operating performance is better than peer median (pre-tax margins of 11.7% compared to peer median 6.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

Cintas Corp.'s revenues have grown at about the same rate as its peers (2.8% vs. 2.8% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 16.9. The historical performance and long-term growth expectations for the company are largely in sync.

Cintas Corp.'s annualized rate of change in capital of 2.8% over the past three years is around its peer median of 2.6%. This median investment has likewise generated a peer median return on capital of 7.4% averaged over the same three years. This median return on investment implies that company is investing appropriately.

Earnings Quality

Cintas Corp. has reported relatively strong net income margin for the last twelve months (7.4% vs. peer median of 4.1%). This strong margin performance was accompanied by a level of accruals that was around peer median (4.9% vs. peer median of 4.9%) suggesting that the reported net income is supported by a reasonable level of accruals.

Cintas Corp.'s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

Cintas Corp. designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom supplies, tile and carpet cleaning, promotional products, first aid and safety products, fire protection services and document management services customers throughout U.S. and Canada. The company operates through four operating segments: Rental Uniforms and Ancillary Products, Uniform Direct Sales, First Aid, Safety and Fire Protection and Document Management Services. Cintas was founded by Richard T. Farmer in 1968 and is headquartered in Cincinnati, OH.

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Source: Earnings Analysis For Cintas Corp.