Highly Valued Cintas Is Still A Buy Trading at 37 times its earnings and yielding less than 1%, Cintas (NASDAQ: CTAS) is certainly overvalued when compared to the broad S&P 500.

Buy Cintas On Post-Earnings Weakness

Trading at 37 times its earnings and yielding less than 1%, Cintas (NASDAQ: CTAS) is certainly overvalued when compared to the broad S&P 500. What those numbers don't tell you is that this company has returned to pre-COVID revenue levels, has an outlook for high single-digit growth, is widening margins, and returning value to shareholders. Not only that but Cintas is among the safest of the dividend growth stocks that we cover, is buying back shares, and is expected to do both again in fiscal 2022.

The problem facing the stock now is mixed guidance. The company guided revenue for the coming year to a range slightly below the consensus and that may weigh on share prices in the near term. We prefer, however, to focus on the earnings outlook which was better than expected and implies an additional Improvement to margins. We also think it is highly likely that Cintas will increase its revenue guidance as the year wears on.

Cintas Regains Pre-COVID Revenue Levels

Cintas had a strong quarter and one that was driven primarily by the resumption of business activities across the country. The company's $1.84 billion in revenue is up 13.6% from last year and beat the consensus by 100 basis points. To keep this in perspective, fourth-quarter revenue is up 2.7% over the two-year time frame putting the company firmly back at pre-COVID levels. The revenue strength was driven by an 11.5% increase in organic sales that was driven by a 15.4% increase in Rental and Facility services that was offset by a near 7% decline in the Other category. The other category is primarily first aid supplies so it is no surprise to see sales fall. Last year's fourth quarter was peak-COVID for Cintas and the company was selling PPE supplies like crazy.

Moving down the report, Cintas' efforts over the past few years to improve profitability are paying off. Synergies with acquisitions as well as investments in technology helped widen the gross margins by 310 basis points and the operating margins by 660 basis points. Some of these gains are attributable to COVID-related spending in the prior-year quarter but not all of it. On the bottom line, the company's GAAP EPS of $2.47 is up 83% from last year and beat the consensus by $0.17.

Cintas was able to give guidance for the coming year and forecast revenue growth in the range of 5.6% to 7% as compared to the consensus for revenue growth of 7.5%. That miss is offset by the EPS guidance, though. The company is expecting EPS in the range of $10.35 to $10.75 versus the consensus of $10.27 confirming our expectations for further margin improvements in the coming year.

Cintas Is Growing Its Dividend

The only thing we can fault Cintas on is its low 0.8% dividend yield. Other than that, there is not one thing to dislike about the distribution. The payout ratio is a low 29% of the consensus estimate, a consensus that was just beaten, and the five-year CAGR is above 30%. Based on the balance sheet, the earnings outlook, and the dividend history we expect the company to engage and a 10th dividend increase at the end of this year and we do expect it to be a rather large one.

The Technical Outlook: A Secular Break Out For Cintas

Shares of Cintas recently broke out of a major consolidation that we see leading to high double-digit gains this year. When the price action broke above the $365 resistance line it confirmed a bullish flag on the weekly charts that comes with a $200 flagpole. Projecting that onto current price action gives us a target $550 and it should be reached within the next 12 to 15 months.

Cintas is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.