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Cintas Corporation Analysis – August 2015 Update $CTAS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cintas Corporation (CTAS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cintas Corporation (Cintas) provides products and services to businesses of all types. The Company operates in North America, as well as Latin America, Europe and Asia. Cintas operates in four segments: The Rental Uniforms and Ancillary Products segment consists of rental of corporate identify uniforms and other garments, including flame resistant clothing, and the rental or sale of mats, mops, shop towels, restroom supplies and other rental services. The Uniform Direct Sales segment consists of the direct sale of uniforms and related items. The First Aid, Safety and Fire Protection Services segment consists of first aid, safety and fire protection products and services. The Document Management Services segment consists of document destruction, document imaging and document retention services.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTAS – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 3.33
MG Growth Estimate 12.33%
MG Value $110.24
Opinion Undervalued
MG Value based on 3% Growth $48.22
MG Value based on 0% Growth $28.27
Market Implied Growth Rate 8.17%
Current Price $82.60
% of Intrinsic Value 74.92%

Cintas Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2012 to an estimated $3.33 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.17% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cintas Corporation (CTAS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CTAS charts August 2015

Net Current Asset Value (NCAV) -$4.54
PEmg 24.84
Current Ratio 2.79
PB Ratio 4.94
Dividend Yield 1.03%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Total Current Assets $1,735,807,000
Total Current Liabilities $621,058,000
Long-Term Debt $1,300,000,000
Total Assets $4,192,460,000
Intangible Assets $1,238,046,000
Total Liabilities $2,260,005,000
Shares Outstanding (Diluted Average) 115,530,000

Earnings Per Share History

Next Fiscal Year Estimate $3.78
May15 $3.63
May14 $3.05
May13 $2.52
May12 $2.27
May11 $1.68
May10 $1.40
May09 $1.48
May08 $2.15
May07 $2.09
May06 $1.92
May05 $1.69
May04 $1.54
May03 $1.45
May02 $1.36
May01 $1.30
May00 $1.14
May99 $0.82
May98 $0.82
May97 $0.70
May96 $0.59

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.33
May15 $2.94
May14 $2.46
May13 $2.07
May12 $1.83
May11 $1.66
May10 $1.70
May09 $1.85
May08 $1.99
May07 $1.85
May06 $1.68
May05 $1.53
May04 $1.42
May03 $1.31
May02 $1.19
May01 $1.06
May00 $0.90

Recommended Reading:

Other ModernGraham posts about the company

24 Companies in the Spotlight This Week – 3/28/15
Cintas Corporation Quarterly Valuation – March 2015 $CTAS
27 Companies in the Spotlight This Week – 12/20/14
Cintas Corporation Quarterly Valuation – December 2014 $CTAS

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please see our detailed disclaimer.

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