20

Cintas Corporation
Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Cintas Corporation (CTAS) Company Business Cintas Corporation is the largest U.S. corporate uniform and service company. They have over 900,000 customers and have successfully reached over 30% of the $7 billion market for uniform rentals in the U.S. Their primary market is in North America, however they are also in Latin America, Europe and Asia. The Rental Uniforms and Ancillary Products segment consists of rental and servicing of uniforms and other ancillary items such as flame resistant clothing, mats, and mops. They also offer cleaning services within the same business segment. The Uniform Direct Sales segment consists of the direct sale of uniforms and other products. The First Aid, Safety and Fire Protection Services segment consists of first aid, safety and protection products and services. The Document Management Services segment consists of document destruction, document imaging, and document retention services. They also grow through Acquisitions. Threats They are somewhat dependant on the strength of the economy and rising unemployment along with rising oil price will appear as a threat to Cintas o Higher oil costs will increase operating expenses and higher unemployment means fewer uniforms Business Segments - Revenues: Rental Uniforms and Ancillary Products amount

Competitors: Consist of G&K Services (GKSR), Unifirst (UNF) and Aramark (a private company) o The three combined amount to 40% of the market for uniforms in the U.S.

Additional Notes: Dividends - Paid annually o Fiscal 2011 - $0.49/share o Fiscal 2010 - $0.48/share o Fiscal 2009 - $0.47/share Financial Statement Notes: Legal Settlements in fiscal 2010 amounted to $23,529 thousand They spent a significant amount for acquisitions in fiscal 2011 compared to 2009 and 2010 o Led them to among other things to take on a massive amount of debt o They also took on this large amount of debt to repay off a significant amount of debt and repurchasing a significant amount of shares Potential Risks: Manage their interest rate risk through the use of bonds and equity markets They hedge their foreign exchange risk through the use of options and forward contracts

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

16.5% 9.3% 10.7% 11.2%

15.1% 9.6% 11.7% 12.2%

14.4% 9.7% 11.7% 12.4%

14.3% 9.8% 11.4% 11.4%

15.7% 9.6% 11.3% 11.0%

15.4% 9.4% 11.3% 10.4%

14.9% 8.8% 10.5% 9.8%

9.6% 6.1% 9.3% 9.3%

8.5% 5.4% 6.7% 7.2%

10.7% 5.7% 7.0% 6.6%

All ratios have been gradually decreasing over time

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Solvency Ratios
Quick Ratio Current Ratio Total Debt/Equity Ratio Long Term Debt/Equity Ratio Short Term Debt/Equity Ratio

2.11 2.73 0.77 0.49 0.01

2.13 2.88 0.57 0.32 0.02

2.61 3.18 0.49 0.25 0.01

2.67 3.27 0.45 0.22 0.00

2.38 2.86 0.64 0.38 0.00

2.30 2.87 0.65 0.40 0.00

2.84 3.49 0.69 0.42 0.00

3.36 4.00 0.57 0.33 0.00

3.53 3.97 0.57 0.31 0.00

3.34 3.92 0.89 0.56 0.00

Total Debt to equity ratio may raise some concern with their new amount of debt they have taken on it has made investing in this stock more risky of payment issues
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue
Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue

0.90 1.8% 12.5% 25.6% 0.0%

2002

1.04 1.2% 10.4% 25.9% 0.0%

2003

1.00 3.1% 10.1% 25.9% 0.0%

2004

1.00 1.4% 10.7% 26.4% 0.0%

2005

0.99 1.1% 11.5% 26.7% 0.0%

2006

1.04 1.0% 11.0% 27.1% 0.0%

2007

1.03 1.7% 10.9% 28.0% 0.0%

2008

1.01 3.4% 19.0% 28.7% 0.0%

2009

0.89 11.6% 10.8% 31.3% 0.0%

2010

0.88 11.5% 22.5% 30.7% 0.0%

2011

0.83 45.5 18.5 6.16 59.27 47.7% 8.5%

0.89 37.8 13.8 6.75 54.10 43.8% 8.5%

0.97 37.0 13.1 7.17 50.90 42.7% 6.6%

0.98 38.9 15.7 8.03 45.45 42.3% 7.1%

0.91 41.8 14.6 8.63 42.29 64.5% 5.8%

0.84 40.3 12.1 9.07 40.23 65.4% 6.3%

0.80 39.9 16.8 8.78 41.59 65.1% 6.1%

0.39 69.5 12.6 9.18 39.77 61.5% 5.4%

0.39 39.3 13.8 10.21 35.76 57.6% 4.8%

0.40 82.0 20.0 9.58 38.10 69.1% 6.6%

2008

2009

2010

2011

P/E P/S P/BV P/CF P/FCF

11.76 1.00 1.75 8.15 11.71

14.90 0.89 1.42 7.56 10.70

18.07 1.10 1.54 10.78 15.19

19.81 1.28 2.12 12.10 18.97

On a relative multiples basis, CTAS is clearly over-valued in comparison to the previous 4 years

Relative Ratio Comparison CMRG does classify some of its competitors in their latest's annual statement. I believe there direct competitors to consist of G&K Services (GKSR) and Unifirst (UNF).
Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low $ $ $ $ $ CTAS 40.21 5,220.00 6,160.00 40.54 26.39 52.4% 20.2 1.3 10.0 11.2 22.4 9.5 1.3% 1.5% 7.0% 26.1% 8.8% 1.3% 2.3% 49.0% 35.4% -2.6% 1.8 2.2 0.50 0.61 42.5% 42.2% 12.5% 12.5% 6.8% 7.2% 6.7% 7.2% 12.1% 11.8% 9.4 9.2 1.0 $ $ $ $ $ UNF 59.67 1,190.00 1,240.00 62.75 42.84 39.3% 15.1 1.0 2.5 8.2 55.8 6.5 0.3% 0.4% 0.0% 3.6% 14.6% 1.0% 6.7% 8.3% 1.7% 13.3% 2.3 2.8 0.12 0.14 36.6% 38.1% 10.8% 11.4% 6.7% 6.6% 6.9% 6.8% 10.1% 11.1% 8.8 11.8 1.0 $ $ $ $ $ GKSR 33.19 625.15 744.61 36.54 24.24 36.9% 18.5 0.7 3.4 9.0 25.9 7.4 1.6% 0.9% 40.3% 25.4% 6.4% 0.7% -1.2% 8.2% -8.0% -1.9% 0.8 2.0 0.18 0.25 30.7% 31.0% 7.4% 4.8% 3.9% 1.7% 3.9% 1.7% 6.6% 3.0% 9.3 3.7 1.0

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

On a relative basis, CTAS looks to be overvalued in relation to the multiples They do have cost and efficiency advantages which is evident by their better margins than competitors

Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced CMRG based on fundamentals. Based on my assumptions the market has currently priced CMRG to have a owners earnings FCF growth rate of around a 15% - 17% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is massively above its 5 year and 10 year historical averages. In fact over time, CMRG has failed to deliver a good FCF growth over time to shareholders. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 0% for the next 10 years with it slowing down in the later years. It has over the years not been able to successfully deliver owners earnings FCF growth to the shareholders. Under my assumptions, I believe the intrinsic value to be around $17.89 on the safe side and on the more optimistic side $20.00.

45 40 35 30 25

5 Yr Price vs Intrinsic Value

20 15
10 5 0 05/07/2005 05/07/2007
Historical Price

05/07/2009
Intrinsic Value

05/07/2011
Buy Price

FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 7.65%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. According to this model, the intrinsic value is roughly around $21.60 - $23.33. Technical Analysis Looking at the chart below, there does seem to be evident support and resistance levels, however I believe that this stock is ultimately driven by fundamentals.

Overview The low valuation for this stock is due to their inability to effectively increase FCF Growth over the years along with their inability to deliver a high amount of earnings growth. I do not see myself getting into this stock any time soon or any time at all unless another recession came and the price was well below the $20 level. I believe that too many people have too much of an optimistic view for this company and that is why the stock has too high of a price. This stock would have to be below $15 for me to even begin of thinking of purchasing this stock. I would stay away at these current price levels. Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.