Cintas Corporation (NASDAQ:CTAS)’s primary business is creating and servicing corporate uniform plans.
The company also sells business products and services, including:
– Safety services
– First aid products
– Restroom supplies
– Document management
– Fire protection products
Cintas was founded in 1929 as Acme Industrial Laundry Company. Cintas went public in 1983 and now has a market cap of $9.6 billion.
The hedge fund sentiment towards Cintas has been steady, with 27 funds among those tracked by Insider Monkey holding around 11% of the company’s outstanding stock at the end of September, versus 28 funds a quarter earlier. First Eagle Investment Management, Cliff Asness’ AQR Capital Management, and David Harding’s Winton Capital Management are among Cintas’ top shareholders.
Cintas has a streak of 31 consecutive years of dividend increases. The company’s long dividend streak makes Cintas a member of the exclusive Dividend Aristocrats Index.
Cintas Business Overview
Cintas’ operations are divided into 3 segments. Each segment is shown below, along with the percentage of total pretax income generated from each segment:
– Uniform Rental & Facility Services generates 87% of pretax income
– First Aid & Safety Services generates 6% of pretax income
– All Other generates 7% of pretax income
Cintas generates the vast majority of its income from its rental uniform business. This business line is the core of what Cintas is.
Cintas competitive advantage comes from its established local delivery routes and network of processing facilities. The company’s employee and location count are shown below:
– 8,000 delivery routes
– 364 operating facilities
– 8 distribution centers
– 32,000 employees (only 200 union employees)
It would require a large amount of up-front capital to compete effectively with Cintas in business uniform services in North America. Cintas is the largest business of its kind in North America.
The company has a scale based competitive advantage that is very difficult for potential competitors to replicate.
Growth Prospects & Total Return
Cintas Corporation (NASDAQ:CTAS) has grown earnings-per-share at 6.6% a year over the last decade.
The company has reduced its share count by 4.1% a year over the same time period. About two-thirds of Cintas’ growth has been driven by share repurchases rather than organic growth.
Going forward, Cintas will likely continue to grow at about the same pace it has over the last decade.
The company’s long-term organic growth is in line with overall business growth in the United States. Demand for uniform services somewhat tracks the overall economy.
As businesses prosper, they hire more employees and need more laundering services. When the economy contracts, employees are laid off, and less laundering is required.
Shareholders should expect total returns of 6.2% to 8.2% a year going forward from Cintas. Total returns will come from:
– Share repurchases of 3% to 4% a year
– Organic growth of 2% to 3% a year
– Dividend yield of 1.2%