Business Support Stocks

Cintas Corp Valuation – December 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 – November 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 Corp (CTAS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cintas Corporation provides products and services to businesses of all types. The Company is a provider of corporate identity uniforms through rental and sales programs, as well as a provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, and first aid, safety and fire protection products and services. The Company has three segments: Rental Uniforms and Ancillary Products, Uniform Direct Sales, and First Aid, Safety and Fire Protection Services. The Company’s Rental Uniforms and Ancillary Products segment consists of the rental and servicing of uniforms and other garments, including flame resistant clothing, mats, mops and shop towels and other ancillary items. The Company’s Uniform Direct Sales segment consists of the direct sale of uniforms and related items. The Company’s First Aid, Safety and Fire Protection Services segment consists of first aid, safety and fire protection products and services.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTAS – December 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 $9,896,574,864 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.81 Fail
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 83.74% Pass
6. Moderate PEmg Ratio PEmg < 20 27.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.57 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 1.81 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.36 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

CTAS value Chart December 2015

EPSmg $3.34
MG Growth Estimate 12.46%
MG Value $111.71
Opinion Fairly Valued
MG Value based on 3% Growth $48.46
MG Value based on 0% Growth $28.41
Market Implied Growth Rate 9.49%
Current Price $91.81
% of Intrinsic Value 82.18%

Cintas Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio as well as the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by 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.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.83 in 2012 to an estimated $3.34 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 9.49% 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 within a margin of safety relative to 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 Corp (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 December 2015

Net Current Asset Value (NCAV) -$4.81
Graham Number $37.77
PEmg 27.47
Current Ratio 1.81
PB Ratio 5.57
Dividend Yield 0.93%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Aug15
Total Current Assets $1,733,952,000
Total Current Liabilities $959,326,000
Long-Term Debt $1,050,000,000
Total Assets $4,122,949,000
Intangible Assets $1,347,809,000
Total Liabilities $2,274,280,000
Shares Outstanding (Diluted Average) 112,229,000

Earnings Per Share History

Next Fiscal Year Estimate $3.83
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 $3.34
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

The Best Companies of the Business Support Industry – November 2015
Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015
Dividend Growth Stocks for the Intelligent Investor – September 2015
19 Best Stocks For Value Investors This Week – 8/29/15

Other ModernGraham posts about related companies

The Best Companies of the Business Support Industry – November 2015
Paychex Inc. Valuation – November 2015 Update $PAYX
Robert Half International Inc. Valuation – November 2015 Update $RHI
Alliance Data Systems Corporation Analysis – October 2015 Update $ADS
Automatic Data Processing Analysis – September 2015 Update $ADP
Accenture PLC Analysis – September 2015 Update $ACN
Dun & Bradstreet Corp. Analysis – September 2015 Update $DNB
Cintas Corporation Analysis – August 2015 Update $CTAS
Apollo Education Group Inc. Analysis – Initial Coverage $APOL
Paychex Inc. Analysis – August 2015 Update $PAYX

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.  See my current holdings here.  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 be sure to review our detailed disclaimer.

 

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