Cintas Corporation

 CTAS Details

Cintas Corporation (NASDAQ: CTAS) is an industry leader in corporate identity uniforms and facility services in North America, Latin America, Europe, and Asia. Its uniform rental and facility service segment, which accounted for 79.79% of revenue in Q3FY21 (ending February 28, 2021), rents and services uniforms to businesses and provides restroom supplies and cleaning services. CTAS also operates first aid and safety services, fire protection services, and uniform direct sales businesses. The company offers its products and services through 12 distribution centers, 11,100 local delivery routes and 40,000 employee-partners. As of June 23, 2021, the company’s market capitalization stood at USD 39.34 billion.

Innovative Strategies to Serve Better: On June 7, 2021, CTAS initiated one of its kind Total Clean Program to foster cleaner and safer environments for schools, hospitals, and restaurants. The program has three dimensions i.e., procurement of cleaning and safety supplies; industrial wash of fabric masks, uniforms, isolation gowns used by frontline healthcare workers; and deep cleaning and sanitization of restrooms with electrostatic disinfectants. On June 21, 2021, the company announced the introduction of its most reliable and acceptable Personal Protective Equipment (PPE) under its Advantage 97 product line. These PPEs will be stacked in CTAS’ warehouses across the U.S. and will be readily available to cater to customers' demands.

Q3FY21 Results: CTAS reported total revenue of USD 1.78 billion for Q3FY21 as compared to USD 1.81 billion in Q3FY20, registering a negative growth of 1.86% YoY. CTAS reported an operating profit of USD 326.47 million in Q3FY21 which was up by 3.76% YoY. Operating margin improved by 100 bps to 18.37% in Q3FY21. Net income improved by 10.18% to USD 258.38 million in Q3FY21 in contrast to USD 234.52 million in Q3FY20.  

Key Risks: CTAS operates in a highly regulated industry which mandates it to comply with several environmental laws and regulations, and non-observance of these laws can make CTAS vulnerable to litigations, which would have an adverse impact on its financials. Further, around 10% of the company’s revenues were in currencies other than USD in FY20, exposing the company to currency fluctuations.

Outlook: In its Q3FY21 press release, the company outlined that for Q4FY21, it expects to clock revenue in the range of USD 1.80 – 1.83 billion with an EPS ranging between USD 2.20 and USD 2.40.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CTAS Daily Technical Chart

Stock Recommendation: CTAS has increased 11.86% and 10.71% in the past 3 and 6 months, respectively, and is currently trading ahead of the previous 52-week range of USD 254.07 to USD 374.95. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 69.37. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 313.54. Considering the significant increase in stock price, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 375.78, up by 0.34% as of June 23, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

  Victory Capital Holdings, Inc.

 VCTR Details

Victory Capital Holdings, Inc. (NASDAQ:  VCTR) is a diversified global asset management firm with ten autonomous investment franchises and a solutions platform. It has Assets Under Management (AUM) of USD 160.94 billion as of May 31, 2021. VCTR offers investment management, fund administration, fund compliance, fund transfer agent, and fund distribution services to various customers, including institutions, intermediaries, retirement platforms, and individual investors. It derives its revenue from asset-based fees, which include investment management, fund administration, and distribution fees by providing investment strategies. As of June 23, 2021, the company’s market capitalization stood at USD 2.13 billion.

Eyeing Cryptocurrency Market: On June 9, 2021, VCTR has entered into agreements with Nasdaq and crypto-focused asset manager Hashdex Ltd. to further its plans of entering cryptocurrency markets. VCTR will be the sole sponsor of private placement funds based on the Nasdaq Crypto Index (NCI) for US investors. With the help of Hashdex’s trading and asset management expertise, VCTR also aims to launch Nasdaq Bitcoin Reference Price Index and Nasdaq Ethereum Price Index. 

Expansion Through Horizontal Acquisition: On March 1, 2021, VCTR completed the acquisition of THB Asset Management, which had an AUM of USD 547 million as of the date. In addition to the US, it also has a presence in Australia and Europe. All of THB’s portfolios have a track record of excellent investment performance, with the potential to grow its AUM across the product set.

Q1FY21 Results: VCTR reported total revenues of USD 212.95 million for Q1FY21 (ending March 31, 2021) as compared to USD 204.42 million in Q1FY20, thus realizing a lower single-digit growth of 4.17% YoY. Growth in the topline can be primarily attributed to an increase in AUM resulting from THB’s acquisition. VCTR reported an operating margin of 42.15%, which was down by 218 bps as compared to Q1FY20. Net income increased to USD 65.20 million in Q1FY21 in contrast to USD 57.17 million in Q1FY20, thus achieving a YoY growth of 14.06% YoY.

Key Risks: Crestview GP holds 52.2% of Class B common shares and 66.2% of the total voting power in VCTR, which gives it significant control over the policies and operation of the company. This concentration of voting power could prevent Class A shareholders from earning a premium on sale, and could also impact the market price of Class A stock. In addition, VCTR has invested most of its AUM (~73%) in long-only equity strategies, as opposed to some of its competitors who offer strategies taking short positions or investing in private companies to mitigate the risk of a downturn in long-only strategies.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

VCTR Daily Technical Chart

Stock Recommendation: VCTR has increased 23.81% and 29.44% in the past 3 and 6 months, respectively, and is currently inching towards the higher band of the 52-week range of USD 15.69 to USD 31.48. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 60.23. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 27.28. Considering the significant uptick in stock price, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 31.04, down by 1.21% as of June 23, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.