After posting a positive earnings surprise in the first quarter of fiscal 2010, Cintas Corp. (CTAS) recently reported lower-than-expected earnings for the second quarter. The company posted second-quarter earnings of 37 cents per share compared to the Zacks Consensus Estimate of 43 cents. The company’s sales were down 10% year over year due to significant job losses in the economy since the start of recession.
Increasing job losses are adversely impacting the company’s top-line. Cintas pointed out that the U.S. economy has lost jobs for 23 consecutive months, with 7.2 million jobs lost total. Its impact on the company has been drastic, as approximately two-thirds of these job losses occurred in traditional uniform-wearing industries, and Cintas derives more than 80% of its revenue from Uniform Direct Sales and Rental Uniform and Ancillary Products segments.
For fiscal 2010, the Zacks Consensus Estimate for Cintas is $1.63, compared to $1.83 reported in fiscal 2009. In the last month, the Zacks Consensus Estimate has fallen by 10 cents, as 7 out of 10 analysts covering the stock have lowered their estimates and just one analyst has raised the estimate. The Zacks Consensus Estimate for fiscal 2011 dropped 15 cents in the last 30 days as 8 analysts have reduced their estimates, while none have raised it.
With a majority of the analysts lowering their estimates, the Zacks Rank for Cintas fell to #5, or a short-term rating of Strong Sell.
However, we maintain our long-term recommenadation of Neutral for the stock as we believe that Cintas is well positioned to capitalize on economic recovery, given its strong market position and solid balance sheet.
The company had $342 million in cash and marketable securities and no short-term debt as of November 30, 2009. Given its financial strength, Cintas is on the lookout for the right acquisition opportunities at attractive valuations to further strengthen its position in the domestic as well as international markets.
Read the full analyst report on “CTAS”
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