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S&P Affirms Ratings on Cintas Corp. (CTAS) Following Recent Review; Sees Solid FCF Generation

June 28, 2016 3:39 PM EDT

S&P Global Ratings today affirmed all of its ratings on Cintas Corp. (Nasdaq: CTAS), including the 'A-' corporate credit rating and 'A-2' short-term commercial paper rating. The outlook is stable.

"The rating affirmation reflects our expectation that the company will continue to generate consistent organic sales growth and solid profitability," said S&P Global Ratings analyst Katherine Heng. "Even if the company were to increase share repurchases or make meaningful acquisitions over the next two years, we expect debt to EBITDA would be in the low-1x area and FFO to debt would be sustained in the 50%-60% range."

The ratings on Cintas reflect its strong market position in the uniform rental and facility services industry, its diverse customer base, solid operating efficiency, and above-average profitability, which we believe partly reflects its economies of scale. In S&P Global Ratings' view, Cintas has a solid management team that has grown its core rental uniform and facility services businesses, primarily through consistent organic expansion and gradual capacity increases. However, we believe the company lacks global diversification. We also believe the company is sensitive to material and energy costs, and that the level of capital expenditures is relatively high (mainly due to rental processing plants, branches, and trucks).

The stable outlook reflects our expectation that the company will generate solid free cash flow that it will use for modest acquisition activity and shareholder payments. We also assume any large-scale acquisitions or share repurchases would only result in modest credit measure deterioration, including debt to EBITDA and FFO to debt in the low-1x area and 50%-60% range, respectively.



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