By Todd Bunton
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Cintas (CTAS) delivered excellent second-quarter 2012 results Tuesday. Earnings per share came in at 57 cents, crushing the Zacks Consensus Estimate by 9 cents. It was a whopping 50% increase over the same quarter in 2011. 

Revenue rose 9% to a record $1.02 billion, ahead of the Zacks Consensus Estimate of $1 billion. Organic revenue increased a solid 7% as the company maintained momentum in its rental uniforms and ancillary products segment, as well as in its first aid, safety and fire protection services segment. Operating income improved 30% year-over-year, while operating margin improved from 10.9% to 13%.

Cintas also raised 2012 guidance. The company supplies 900,000 businesses and should benefit from an improving labor market, as more workers mean more uniforms. It now expects EPS in the range of $2.16 to $2.20, with revenue between $4.08 billion and $4.13 billion. This is up from previous EPS guidance of $1.97 to $2.05 on revenue of $4 billion to $4.1 billion. The company stated that "while we remain cautious about the U.S. economic picture, we have more confidence about our ability to execute in this less than robust environment."
 

These factors prompted analysts to raise their estimates significantly for both 2012 and 2013, sending the stock to a Zacks No. 2 Rank ("buy"). The Zacks Consensus Estimate for 2012 is now $2.19, within guidance, and representing 29% growth over 2011 EPS. The 2013 consensus estimate is currently 8% higher at $2.35.

On top of strong earnings growth potential, the company also pays a dividend that yields a solid 1.5%. Cintas has a history of rewarding its shareholders and has raised its dividend every year since it began paying one in 1991. It would be safe to bet that the company will continue raising its dividend in the near future. Its payout ratio is still relatively low at 27%, and earnings are projected to grow at a healthy clip over the next couple of years.

 

Shares of CTAS are up more than 20% since I wrote about it on Sept. 29. But valuation still looks very reasonable. Shares trade at just 15.8 times 12-month forward earnings, a discount to its 10-year median of 17.8 times.

The Bottom Line: With strong earnings momentum, solid growth prospects, a rising dividend and reasonable valuation, Cintas still offers plenty of upside potential.

 

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

 

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