Nomura Securities Reiterates Buy as Cintas Corp. (CTAS) Announces G&K Services Acquisition
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Nomura Securities reiterated a Buy rating on Cintas (NASDAQ: CTAS), and raised the price target to $124.00 (from $107.00), following the company's announcement that it has signed a definitive agreement to acquire G&K Services for a total EV of $2.2bn.
Nomura commented, "Yesterday morning, CTAS announced that it signed a definitive agreement to acquire G&K Services for a total EV of $2.2bn, 7-8x pro-forma for the realization of $130-140mn of annual synergies. As customary on CTAS events, the call began with investors tuning in to a message from CEO Farmer, who highlighted the "deep level of respect for GK." In reality, at just +2% organic growth (vs. ~5% LTM), GK's lackluster F4Q likely eased its decision to sell. Regardless, we view the transaction as a strong positive for CTAS and highlight: (a) its defensive strategic qualities by impeding CTAS's key public competitors from gaining comparable scale, (b) potential revenue synergies from offering CTAS's wide array of products to GK's 170K customers (e.g. hygiene), and (c) CapEx savings from assuming certain GK facilities. We value CTAS based on PF CY17 EPS of $5.50. Raising TP from $107 to $124. Reiterate BUY."
Shares of Cintas closed at $112.99 yesterday.
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