Cintas Is A Good Long Term Holding, Thanks To Organic Growth: Analyst

Stifel analyst Shlomo H. Rosenbaum reiterated the Hold rating on Cintas Corporation CTAS, raising the price target to $526 from $521.

CTAS reported first-quarter FY24 revenue growth of 8% year-on-year to $2.34 billion, meeting the analyst consensus estimate. The organic revenue growth rate, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 8.1% for the quarter.

The analyst views the earnings report as solid. CTAS is typically a "beat and raise" stock, and investors have come to expect a beat and a raise in the quarter, notes the analyst. 

Rosenbaum is bullish on the company's track record of growth and margin improvement and believes that management likes to set targets that it can at least deliver upon and hopefully (and generally) outperform against. CTAS is unique in terms of being the largest company in the space but still having the fastest organic growth rate, the analyst adds. 

While Rosenbaum thinks that the stock is a good holding for the long term, the current valuation captures the bulk of the appreciation potential in the near term.

While there might be a slowdown in the macro environment at some point in the future that impacts CTAS, CTAS has not seen any meaningful changes in customer behavior since the last earnings report. 

The analyst believes the largest macro risk would be rising unemployment, which could represent a headwind to both revenue (less wearers per stop) and margins.

For FY24, the analyst now expects EPS of $14.46, while for FY25, Rosenbaum projects an EPS of $16.02.

Price Action: CTAS shares are trading higher by 0.44% to $481.36 on the last check Wednesday.