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solzberg in Gainers & Losers,

Cintas to hit $100 mark in medium term

I remain upbeat about the shares of Cintas, a US largest producer of corporate uniform and a provider of diversified services for businesses. The company’s financials for its fiscal 2016 third quarter ended Feb 29 were solid. Revenues increased 9.7% y-o-y to $1.216 bn and exceeded consensus estimate of $1.202 bn. Organic revenue growth, which adjusts for the impacts of acquisitions and foreign currency exchange rate fluctuations, was 6.8%. The superior top-line performance was primarily attributable to the addition of newer customers, higher product prices and higher penetration of existing customers through better and innovative products and services. Operating income was $192.9 mn, up 11.1%, and operating margin climbed 20 basis points to 15.9%. Adjusted earnings per share jumped 23.5% to $1.05 and surpassed analysts’ average projection by 10 cents.

Cintas had a solid financial position with adequate liquidity at the end of the reported quarter. Cash and cash equivalents were $315.1 mn while long-term debt was $1.1 bn. The company repurchased 5.7 mn shares since the beginning of fiscal 2016 for $482.9 mn, including $100 mn in FQ3, and currently has $280 mn worth of shares available for repurchase.

Encouraged by the healthy FQ3 results, Cintas improved its guidance for full fiscal year 2016. The company now expects fiscal 2016 revenues in the range of $4.860-4.890 bn, up 8.6-9.2% y-o-y. Earnings from continuing operations are expected to be within $3.98-4.03 per share, which represents a y-o-y improvement of 18.8-20.3%.

The latest US economic data show employment recovery and improvement in business confidence, which should support demand for the company’s products and services. I believe that Cintas’ shares are well positioned to continue growth, with medium-term target price at $100.