While earnings season doesn’t officially kick off until July 9, uniform expert UniFirst (NYSE:UNF) has already gotten into the swing of things by announcing strong operating results for the third quarter and shares are trading at an all-time high. Is there still some give left in this mid-cap apparel company? Let’s dig into the details.
With over 76 years in the business, UniFirst Corp. is a leading supplier of uniforms and protective clothing. Over the years the company has branched out from standard blue collar work wear to include flame resistant gear, high visibility clothing and corporate casual attire. The company also provides facilities services products like restroom and floor care products. With over $1.1 billion in sales every year, UniFirst is the 19th largest clothing manufacturer in the United States.
UniFirst Corp.’s main competitors are mid-cap Cintas (NASDAQ:CTAS) and small-cap G&K Services (NASDAQ:GKSR). UniFirst hires 11,000 employees while Cintas’ workforce is 30,000 strong; G&K Services has just 7,500 employees.
Of these three apparel companies, G&K Services has the poorest fundamentals, including F-rated earnings growth and momentum and D-rated operating margin growth. Cintas and UniFirst are neck-in-neck in terms of Fundamental Grade and all stocks have decent buying pressure. Unfortunately UniFirst has the lowest dividend yield; 0.3% compared with Cintas’ 1.5% yield and G&K Services’ 2.7% dividend yield.
Last week UniFirst Corp. announced strong operating results for the first quarter. Compared with the same quarter last year, profits jumped 49% to $27.5 million; adjusted profit weighed in at $1.16 per share. The analyst community expected earnings of just 99 cents per share so UniFirst posted a 16% earnings surprise.
Over the same period sales climbed 10% to $321 million; this also topped the $311.6 million consensus estimate by 3%. Better yet, management expects robust top- and bottom-line growth for the rest of the year. While the Street forecasts earnings of $4.19 per share on $1.24 billion in sales, the company expects earnings in the range of $4.60 to $4.70 per share on sales between $1.252 billion to $1.257 billion.
Pleased with this earnings report, investors pushed up shares of UNF by 8%.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. The stock has risen 18% in the past year on increased buying pressure. As such, UNF’s Quantitative Grade has improved enough to send this stock up from a hold to a buy. At the same time the company has remained consistently healthy on the fundamentals side. UNF receives B-ratings all down the line, including sales and earnings growth, cash flow and its history of beating earnings surprises. The only real areas of improvement for this company are its operating margin growth and its return on equity. UNF receives a B for its Quantitative Grade and a B for its Fundamental Grade so all-in-all this is a B-rated stock.
Bottom Line: As of this posting, June 29, I consider UNF a B-rated Buy.
Recommendation: B-rated Buy
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