If the uniform fits, wear it
03/22/18

A trader who pulled up a chart—pretty much any chart—of Cintas (CTAS) over the past few years may have felt challenged to not at least consider buying the stock. The biggest reason to take a pass at any given moment may have been a feeling the stock was due for pullback.

The weekly chart below, for example, shows shares of the Cincinnati-based uniform manufacturer and business supply powerhouse have…well, let’s let some numbers do the talking. As of yesterday, CTAS:

●gained 35% in 2017

●was up more than 730% from its 2009 financial crisis low

●was up more than 14% on the year, and more than 16% since its February correction low

We won’t even compare these stats to any indexes for fear of embarrassing them.

CINTAS (CTAS) 1/30/12–3/21/18

Source: OptionsHouse


Although long-term investors who got into CTAS in the past several years have definitely not had to worry about their timing, analyzing shorter-term patterns suggest there may be certain market events traders may want to consider before taking positions—namely, earnings.

After hitting a new record close of $178.30 on March 9, CTAS did indeed pull back, dropping below $172 on March 19 (below) before bumping up more than 1% yesterday. Cintas is scheduled to release earnings after today’s close, with estimates in the $1.25/share area. The company has done a good job of meeting or beating its numbers in recent years, hitting or topping earnings estimates 20 of the past 29 quarters, and doing the same for revenues 19 of the past 28 quarters.1

CINTAS (CTAS) 2/6/18–3/21/18

Source: OptionsHouse


But Cintas has also shown a tendency to trade up right before earnings releases and sag a bit after them, as shown in the following daily chart that marks several recent earnings releases. Yesterday’s rally (above) fits into the general pattern: Around 90 minutes before the FOMC interest rate announcement, the stock was up around 1.2% while the S&P 500 (SPX) was up only 0.4%. Since December 2010, CTAS has closed higher the day before an earnings release 59% of the time, and closed higher the day of earnings 62% of the time.
CINTAS (CTAS) 2/6/17–3/21/18

OptionsHouse


But remember, CTAS releases its numbers after the closing bell, so we really need to consider what happens starting with the day after earnings (e.g., Friday of this week forward). The stock closed higher the day after earnings announcements only 55% of the time, although the median gain was a healthy 1.3%. But the majority of that gain typically occurred on the open, because the stock opened higher 72% of the time the day after earnings, with a median gain of 1.5%. That means the stock’s typical gain by the end of the session was a little smaller than its typical gain as of the open.

The percentage of up closes over the next four days was 55%, 52%, 45%, and 48% (the fifth day after earnings), and the stock’s median gains on those last two days were negative.

CTAS shares are currently well above the average analyst price target of $162.50,2 and the stock is also facing the resistance of its recent all-time high. Short sellers who held their positions too long in CTAS have been asking for trouble in recent years, but tendencies like the one surrounding earnings can help identify situations that are more advantageous to short-term traders on both sides of the market.

 

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1 StreetInsider. Cintas Corporation (CTAS) Earnings. 3/21/18.

2 Nasdaq.com. Cintas Corporation Stock Research - Analyst Summary. 3/21/18.