Cintas Recovery Is Complete We can nit-pick the labor data all day long but one thing is clear in Cintas Q1 results. Employment levels if not conditions have regained their pre-...

Cintas Recovers Its Pre-COVID Revenue Levels

We can nit-pick the labor data all day long but one thing is clear in Cintas (NASDAQ: CTAS) Q1 results. Employment levels if not conditions have regained their pre-COVID levels. This is evident not only in the revenue but in the earnings and the outlook, and all reinforce the idea Cintas is a great investment. While highly valued at 36X this year's earnings consensus, the consensus is short of reality and in the end, you get what you pay for.

Cintas is among the best run and highest quality companies on Wall Street and a dividend payer of Aristocratic quality. The yield is a bit low at 1.0% but the expectations for dividend growth are very high. The company is paying out less than 35% of its earnings, has a fortress balance sheet, and has been raising the distribution at a near 40% cagr over the past five years. If you're looking to get a big bang for your buck and at a low-risk Cintas is certainly worth a look.

Cintas Beat Consensus And Raises Guidance

Cintas had a great quarter supported by ongoing economic reopening and organic expansion in many of America's businesses. The company reported $1.90 billion in consolidated revenue for a gain of 8.6% over last year. This is 100 basis points better than expected and up 5% over the same time frame in 2019. Organically, revenue grew 8.6% as well because there were no new purchases in the last year and previous purchases have been well integrated into the business. On a segment basis, the core Uniforms & Facilities Services Revenue grew by 8.2% while the Other category, which includes fire, safety, and first aid grew by 10.4%.

Moving down the report, the company was able to increase its margins at both the gross and operating levels despite the systemic headwinds facing much of the rest of the economy. Gross margins improved by 30 basis points to come in at 47.6% and as expected while the operating margin expanded by 80 basis points to hit 20.8% and slightly top the consensus estimate. On the bottom line, the GAAP earnings of $3.11 are up 11.9% on the combination of revenue strength and wider margins and beat the consensus estimate by $0.34.

Turning to the guidance, the company increased its outlook for revenue for the full year to a range of $7.58 billion to $7.67 billion versus the previous range whose top end was $7.63 billion. Earnings should come in the range of $10.60 to $10.90 versus the $10.75 high-end that was previously expected and we think the company will up its guidance again later this year.

The Analysts Are Overwhelmingly Bullish

There hasn't been any analyst activity in the wake of the earnings report yet but we think it's only a matter of time. The analyst's activity in the stock this year, however, has been overwhelmingly bullish and pushed not only the stock's rating but the consensus price target considerably higher. The consensus rating has moved from a firm Hold to a firm Buy over the past year, and the Marketbeat.com price target increased 45% and more than 5% since the last earnings report was released. The consensus price target assumes about 5% of upside while the high price target of $450 assumes a little more than 15.25% of outside.

The Technical Outlook: Cintas Is Well Supported

Cintas is trading just beneath its recently set all-time high and looks well supported. Price action moved lower in the wake of the earnings release but buyers have since stepped in to form what could become a doji candle. We say "could become a doji candle" because the session is yet to close, assuming this is how the market ends the day we see this stock continuing to move sideways if not begin to edge higher in the very near term. Beyond that, we see this stock moving up to retest the all-time highs fairly soon and then breaking out to new highs before the end of the year.