Choosing Between Cintas and UniFirst: A Win-Win Investment Guide

Resilient labor markets, forward-thinking management and capital returns drive long-term gains for investors Ribbons NASDAQ: CTAS AND UniFirst NYSE:UNF; the only question is which is the better buy. The answer depends on numerous factors, including your risk tolerance and time horizon. Investors looking for safe, steady growth and capital returns may seek refuge in Cintas, while those with a higher risk tolerance and at least a few years before retirement may find UniFirst the better choice. And it’s not that UniFirst is a risky stock or company. Its shares trade with a beta of less than 0.85 and the company is solid.

Cintas: The proven winner continues to deliver more than promised

Cintas is the proven winner and decades of performance support this claim. The company has grown steadily since the economic recovery began in 2009 and has consistently outperformed. The latest results include strong top and bottom lines and better guidance than analysts expected. The company delivered industry-leading revenue growth of 10%, aided by acquisitions. Organic growth is also industry-leading at 7.7%. Executives report strength in both operating segments and are guiding for the same in the fourth quarter.

Margin is another strong point, with gross and operating margins widening compared to last year. The improvement resulted in a 22% increase in net income and a 22.3% increase in GAAP earnings. GAAP earnings are 720 basis points higher than Marketbeat.com analysts’ consensus estimates and have driven a significant increase in stock capital. For guidance, the revenue and earnings outlook has been raised to a range with the new lower limit above the previous high limit and including a wider margin.

The balance sheet is rock solid. Cintas has some debt, but leverage is low, at about 0.6 times equity. Third quarter highlights include increased cash, inventory, receivables, relatively stable assets and liabilities. Net worth increased by 9% and further gains are expected this year.

UniFirst is the first in line to follow in Cinta’s footsteps

UniFirst is a smaller but equally well-positioned company in the uniform services industry. The company isn’t growing as fast as Cintas, but it sustained a high-single-digit pace in the second quarter, helped by acquisitions. Organically, the company grew 4.8%, with strength in the core business offset by specialties. UniFirst also expanded its margin but less than Cintas. The caveat is that UniFirst’s margin is impacted by investments in CRM and other digital advances that should drive growth and margin over time.

Among the biggest differences is the driving. UniFirst stands firm on Cintas’ quarterly beat and raise, suggesting caution on the part of management. Regardless, the company is driving growth and margin expansion, which plays into its capital return outlook and valuation.

UniFirst’s valuation and dividend increase are an opportunity

UniFirst trades at half the valuation of Cintas but could undergo significant multiple expansion over time. Its balance sheet is in better shape than that of Cintas, which is a fortress. This gives it plenty of flexibility to invest in growth by paying dividends, increasing distributions and repurchasing shares.

Distribution growth is a primary catalyst due to the payout ratio. UniFirst’s payout ratio is about half that of Cintas, suggesting this is why Cintas is so valued: It has a strong business that pays out 40% of earnings with ample fuel to grow distribution for decades to come. come. In UniFirst’s case, that outlook is compounded by a significantly lower payout ratio that allows for more aggressive dividend increases. Assuming UniFirst increases the payout ratio over time, its stock price multiple should follow it higher to compound organic growth and reinvested dollars.

Cintas in rally mode: Unifirst at the bottom

The chart performance of these stocks differs significantly, with Cintas in a prolonged uptrend and up 10% while UniFirst basks near long-term lows. As Cintas’ results and outlook support the rally, Cintas will likely continue to rise this year. As UniFirst’s results and outlook forecast growth and operational quality suggest increases in return on capital, it is likely that it will recover at some point; the question is when. Until then, UniFirst pays a dividend yielding Cintas’s 0.85%.

Before considering Cintas, you’ll want to hear this.

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