Cintas Corp Valuation – April 2018 $CTAS

Company Profile (excerpt from Reuters): Cintas Corporation, incorporated on November 13, 1986, 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, first aid and safety services and fire protection products and services. The Company’s segments include uniform rental and facility services, and first aid and safety services. Rental processing plants, rental branches, first aid and safety facilities, fire protection facilities, direct sales offices, distribution centers and manufacturing facilities are all utilized by the businesses included in All Other.

CTAS Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTAS – April 2018

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 $18,164,860,211 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.15 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 292.32% Pass
6. Moderate PEmg Ratio PEmg < 20 30.84 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.49 Fail
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 2.15 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.41 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 $5.53
MG Growth Estimate 15.00%
MG Value $212.93
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $80.19
MG Value based on 0% Growth $47.01
Market Implied Growth Rate 11.17%
Current Price $170.58
% of Intrinsic Value 80.11%

Cintas Corporation is suitable 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 concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.46 in 2014 to an estimated $5.53 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 11.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cintas Corporation revealed the company was trading above its Graham Number of $59.9. The company pays a dividend of $1.33 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was 30.84, which was below the industry average of 32.93, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-18.65.

Cintas Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$18.65
Graham Number $59.90
PEmg 30.84
Current Ratio 2.15
PB Ratio 6.49
Current Dividend $1.33
Dividend Yield 0.78%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 2/1/2018
Total Current Assets $1,970,832,000
Total Current Liabilities $917,573,000
Long-Term Debt $2,534,760,000
Total Assets $6,919,849,000
Intangible Assets $3,377,344,000
Total Liabilities $4,025,852,000
Shares Outstanding (Diluted Average) 110,175,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.30
May2017 $4.38
May2016 $6.21
May2015 $3.63
May2014 $3.05
May2013 $2.52
May2012 $2.27
May2011 $1.68
May2010 $1.40
May2009 $1.48
May2008 $2.15
May2007 $2.09
May2006 $1.92
May2005 $1.69
May2004 $1.54
May2003 $1.45
May2002 $1.36
May2001 $1.30
May2000 $1.14
May1999 $0.82
May1998 $0.82

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.53
May2017 $4.42
May2016 $4.14
May2015 $2.94
May2014 $2.46
May2013 $2.07
May2012 $1.83
May2011 $1.66
May2010 $1.70
May2009 $1.85
May2008 $1.99
May2007 $1.85
May2006 $1.68
May2005 $1.53
May2004 $1.42
May2003 $1.31
May2002 $1.19

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15
Cintas Corp Valuation – December 2015 Update $CTAS
The Best Companies of the Business Support Industry – November 2015

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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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