Cintas Corporation

1
Cintas Corporation

• An Equity Research Report
• By Johnny Fournet

2
Company Overview

• Meets most of LWF criteria
• Core business is uniform rental services
• Moving into other service lines, including
  document management and even cleaning services
• Very aggressive in acquiring other firms
• Uses economies of scale to find success in other
  market areas

3
Company Overview, Cont.

• Have acquired over 80 businesses in last 2 ½
  years
• Management ranks highly as a shareholder
  steward
• Almost four decades of increasing revenues and
  profits
• 23 years of dividend increases
• Top execs have majority of net worth invested in
  Cintas shares

4
Industry and Competitive Factors

• Profit margin 9.61 (leading competitors)
• 5-year margin 9.7
• Lead industry in ROA, ROE, and ROC currently and
  with 5-yr. averages
• Cintas dominant with 30 market share
• Close competitors (GK Services, Aramark, and
  UniFirst) make up 40
• Uniform rental market is maturing
• Low power of suppliers and buyers
• Few potential entrants

5
Risks

• No one customer makes up more than 1 of total
  revenues
• Aggressively acquiring new businesses
• Good raise value through economies of scale
• Bad get away from core competencies
• Two outstanding lawsuits that could hurt
  reputation and value
• Union growth could hurt profitability
• Low debt measures and good interest coverage

6
Valuation and Conclusions

• Current P/E 19.6x
• Lower than majority of industry competitors
• My estimates for 2010
• P/E 21x
• Selling price 80
• EPS 3.80
• Acquisition strategy. economies of scale, and
  cross-selling should increase value over next 4
  years