CTAS - Embedded Expectations Analysis - 2020 09 04
Cintas Corporation (CTAS:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 35.1x Uniform P/E. At these levels, markets are pricing in bullish expectations for the firm, but management may be concerned about their customers, potential of new and old offerings, and coronavirusSpecifically, management may lack confidence in their clients' ability to reopen businesses, and their ability to meet the needs of their customers. Furthermore, they may have concerns about the potential shutdown of their facilities, the potential of their new and existing offerings, and opportunities regarding share buybacks. Management may also be exaggerating their ability to manage their cost structure, and they may lack confidence in the potential of their SAP system, and in their ability to secure new acquisition wins. Moreover, they may have concerns about their ability to bounce back after the crisis subsides, the continued impact of the pandemic on the fire and Uniform Direct Sales business, and the sustainability of their healthcare business
Cintas is a provider of corporate identity uniforms through rental and sales programs, as well as a provider of related business services, including entrance mats, restroom cleaning services and supplies, carpet and tile cleaning services, first aid and safety services and fire protection products and services. The company's segments are Uniform Rental and Facility Services, which consists of the rental and servicing of uniforms and other garments, including flame resistant clothing, mats, mops and shop towels and other ancillary items; and The First Aid and Safety Services, which consists of first aid and safety products and services.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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