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It’s a Good Time to Own Cintas

Americans' return to the workplace will bolster CTAS

   

America is getting back to work, and that’s a very simple call to action for owning Cintas (NASDAQ:CTAS), the country’s largest uniform services provider, with 7,700 routes that routinely deliver clothes, safety and fire equipment, cleaning supplies and other products to businesses.

Based in Cincinnati, Cintas accounts for 37% of the domestic market share of the $16 billion uniform services industry. The company was founded by Richard “Doc” Farmer, at the onset of the great depression, as the Acme Industrial Laundry Co. He started by cleaning soiled rags from nearby factories and returning them for a fee. It was a novel and simple idea for sure, but certainly one that filled a need at the time.

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During the next 50 years, the company remained within the family, being passed down from father to son. It was not until 1965, when the reins were handed to another Richard Farmer (Doc Farmer’s grandson), that the company experienced game-changing growth.

Richard took the company into the uniform rental business and helped lead a revolution in the industry. Cintas was at the forefront of polyester-cotton blend uniforms, which doubled their useful life. After great success as a private firm, Cintas finally went public in 1983.

Not only did the business survive its start in the Great Depression, but it has continued to thrive for the last eight decades. The company has aggressively acquired over 200 companies, increasing efficiencies and continually adding to its distribution network in the process.

Cintas now services nearly 1 billion businesses across the casino, hospitality, food service, automotive, and healthcare industries. More than 5 million people go to work every day in a Cintas uniform. It’s scale and route density are clearly its biggest competitive advantages, and it continues to expand the lead is has over its competitors.

In recent years, Cintas has coped with the contraction in employment by streamlining its operation. It has boosted sales force productivity by optimizing routes and eliminating umpteen fixed costs.

Uniform rentals is a mature business, but Cintas has set itself up for future growth in a number of ways. The “add-on” category, where they provide maintenance supplies like mops and brooms, have helped to diversify the revenue base, with little additional overhead costs. After all, stocking a few supplies in a delivery truck that’s already traveling to uniform customers is an added bonus. Another growth area for Cintas according to analysts who follow the segment is the shift of developed markets from goods producing to service providing. This has lead the company to experience fewer ups and downs as the business is less tied directly to the economy.

Cintas still is run by the Farmer family, with a great-grandson, Scott Farmer, serving as chief executive. He joined the firm in 1981 and has held a number of management roles before taking over the head job in 2003.

The company has been able to grow both revenues and earnings eight of the last 10 years while improving operating margins. Shares are currently trading at 17 times earnings, its exact five-year average. Since shares are up 10% so far this year in an environment that can only improve in the coming years, it’s a good time to own the shares.

Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and a long-term investment service, Strategic Advantage. Check out his Top Stock for 2012 here.


Article printed from InvestorPlace Media, http://investorplace.com/2012/04/its-a-good-time-to-own-cintas/.

©2014 InvestorPlace Media, LLC

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