Company Profile
Founded
Cintas (ticker: CTAS) is a company headquartered in Cincinnati, USA. In 1929, Cintas’ predecessor, Acme Industrial Laundry Company, was established. In 1972, the company changed its name to Cintas.
Founder
The founders are Richard (Doc) Farmer and Amelia Farmer. They collect old, used rags from factories, clean them, and sell them back to businesses. In the early 1940s, Doc’s son Hershell took over the company and replaced the old rags with shop towels, becoming a service company.
Business area
Mainly selling uniforms. In addition, the company also provides clothing rental, housekeeping services, first aid and firefighting training, with its main service areas being the United States.
In 1997, Cintas entered the first aid and safety business.
IPO
In 1983, Cinda was successfully listed on the Nasdaq.
Major acquisitions
- In 1995, Cintas acquired fellow Cadet Uniform Service and expanded its uniform services to Canada.
- In 2002, Cinda acquired several companies, including uniform rental company Omni Services, first aid company Petragon, American First Aid and Respond Industries.
- In 2003, Cintas acquired Kamp Fire Equipment, a distributor of fire safety products and services.
- In 2015, Sintras acquired Zee Medical from McKesson Corporation for approximately $130 million.
- In 2016, Cintas acquired G&K Services for $2.2 billion.
Business covery
The company offers uniforms, toilet and chemical supplies, mats, microfiber towels, mops, disinfectant sprays and hand sanitizer for both rental and outright purchase. The company also sells first aid supplies, personal protective equipment (PPE), AEDs, training and compliance courses, eyewash stations and water fountains to businesses.
Cintas also provides fire protection systems service and maintenance with a focus on fire extinguishers, advanced fire alarm systems, commercial sprinkler systems, exit lighting and fire alarm monitoring. Part of Cinda’s measures during the COVID-19 pandemic include increasing cleaning products and services, hand sanitizer, and personal protective equipment and services.
Operating performance
Revenue sources
Uniform rental and facility services account for approximately 80% of its revenue.
Invisible competitive advantage
Cintas has more than one million customers across various industries. The company provides business supplies, safety equipment and other resources to businesses. Cintas generates a steady stream of revenue from its customers, as many businesses require supplies and safety equipment to function properly. Lack of safety equipment can halt production and lead to non-compliance.
Financial report
Cintas reported solid financials, including a 9.9% annual revenue increase in the third quarter of fiscal 2024. Net income rose 22.0% year over year to $397.6 million.
Capital market performance
Share price performance
Cindax has consistently outperformed the market over the years. Shares are up 20% in 2024 through June, more than tripling in the past five years.
Valuation
The $72 billion company has a price-to-earnings ratio of about 49.
Dividend
High dividends are not one of the things that attract investors to this stock. Its dividend yield is about 0.76%. Cinda has maintained double-digit dividend growth rates for several consecutive years, and the company has increased dividends for more than 40 consecutive years.
Stock split
Cinda’s stock has been split six times so far. One share initially listed will become 54 shares. Cintas’s latest stock split will happen in September 2024.
Peter Lynch’s favorite
Peter Lynch mentioned three stories in his book ““One Up on Wall Street”, Peter Lynch’s great book for investing newbie” I reproduce the original text of these three paragraphs here to remind investors.
Waste management is the perfect industry
It’s hard to think of a more perfect industry than waste management. If there’s anything that disturbs people more than animal casings, grease and dirty oil, it’s sewage and toxic waste dumps. That’s why I got very excited one day when the solid waste executives showed up in my office.
Note: Here is a typical stock for this topic also, please see my post of “Quasi-monopoly Waste Management (WM)“
Waste oil cleaning is better
Safety-Kleen (acquired by Clean Harbors, ticker: CLH) goes around to all the gas stations and provides them with a machine that washes greasy auto parts. This saves auto mechanics the time and trouble of scrubbing the parts by hand in a pail of gasoline, and gas stations gladly pay for the service. Periodically the Safety-Kleen people come around to
remove the dirty sludge and oil from the machine, and they carry the sludge back to the refinery to be recycled. This goes on and on, and you’ll never see a miniseries about it on network TV.
Safety-Kleen hasn’t rested on the spoils of greasy auto parts. It has since branched out into restaurant grease traps and other sorts of messes. What analyst would want to write about this, and what portfolio manager would want to have Safety-Kleen on his buy list? There aren’t many, which is precisely what’s endearing about Safety-Kleen. Like Automatic Data Processing, this company has had an unbroken run of increased earnings. Profits have gone up every quarter, and so has the stock.
Wall Street white-collar workers avoid it
The graduating class of Wharton isn’t going to want to challenge SCI (ticker: SCI), and you can’t tell your friends in the investment banking firms that you’ve decided to specialize in picking up dirty oil from the gas stations
Conclusion
It is really remarkable that a typical humble traditional industry like Cintas, even a company that most people look down upon, can make a lot of money selling uniforms and has almost no rivals in its business.
Cinda’s success story confirms the key points emphasized in Peter Lynch’s book: “High-quality companies in boring and dirty industries” are good targets for investment, because no one takes a fancy to them, and of course no one will compete with you. Good investment targets are usually companies that provide products or services that the general public constantly need.
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- “Stocks Better than the S&P 500, Procter & Gamble (P&G) “
- ““One Up on Wall Street”, Peter Lynch’s great book for investing newbie“
- “Quasi-monopoly Waste Management (WM)“
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