Dressed to Impress: UniFirst Stock Outshines the Competition

Source: Thinkstock

Source: Thinkstock

UniFirst Corporation (NYSE:UNF) is an interesting company. This company provides workplace uniforms and protective workwear clothing primarily in the United States, Canada, and Europe. It operates through U.S. Rental and Cleaning, Canadian Rental and Cleaning, Manufacturing, Specialty Garments Rental and Cleaning, and First Aid segments, all of which serve different customers. The company designs, manufactures, personalizes, rents, cleans, delivers, and sells a range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks, aprons, and specialized protective wear, such as flame resistant and high visibility garments. It also rents industrial wiping products, floor mats, facility service products, dry and wet mops, as well as restroom and cleaning supplies comprising air fresheners, paper products, and hand soaps.

The company faces some tight competition from Aramark (NYSE:ARMK) and Cintas Corporation (NASDAQ:CTAS). Both Aramark and Cintas also design, manufacture, personalize, rent, clean, deliver, and sell a range of uniforms and protective clothing, including shirts, pants, jackets, coveralls, lab coats, smocks, aprons, and specialized protective wear. Interestingly, UniFirst is the cheapest of the three companies. Cintas trades at 23.8 times earnings, Aramark trades at 46.4 times earnings, whereas UniFirst trades at more reasonable 18.2 times earnings. Compared to Aramark and Cintas, UniFirst is also the smaller of the companies on a market capitalization basis. However, it is probably the best stock of the three to buy and does more than just textile services.

UniFirst is diversified. The company also provides first aid cabinet services and other safety supplies to companies. It further decontaminates and cleans work clothes and other items that may have been exposed to radioactive materials, and services special clean room protective wear and facilities. UniFirst offers a range of garment service options, including full-service rental programs in which garments are cleaned and serviced. It offers lease programs in which garments are cleaned and maintained by individual employees and purchase programs to buy garments and related items directly.

Like Aramark and Cintas, UniFirst serves a number of different customers. Specifically, UniFirst works with automobile service centers and dealers, delivery services, food and general merchandise retailers, food processors and service operations, light manufacturers, maintenance facilities, restaurants, service companies, soft and durable goods wholesalers, transportation companies, government agencies, research and development laboratories, high technology companies, and utilities operating nuclear reactors. But why consider the stock?

I like the stock at current levels because the company is delivering. It just blew analyst estimates away in its most recent quarter. For example, revenues were $352.2 million, up 4.9 percent from $335.8 million in the year ago period. Net income came in at $30.9 million or $1.53 per diluted share. This was up 7.7 percent from the $28.7 million or $1.43 per diluted share reported in the year ago period. Further, its main revenue generators are firing on all cylinders.

Revenues in the company’s Core Laundry Operations were $313.3 million, up 5.2 percent from those reported in the prior year’s third-quarter. Excluding the negative impact of the weaker Canadian dollar as well as the positive effect of acquisitions, the Core Laundry Operations revenues grew 4.8 percent. This segments income from operations grew 10.3 percent compared to the third-quarter of fiscal 2013 and its operating margin increased to 14.2 percent from 13.6 percent a year ago. Operating margins expanded primarily due to lower merchandise costs and other expenses related to its plant operations as a percentage of revenues.

Revenues for the Specialty Garments segment, which consists of nuclear decontamination and cleanroom operations, were $27.6 million, up 4.9 percent from $26.3 million in the third-quarter of fiscal 2013. This increase was primarily the result of a higher number of power reactor outage projects in the United States and Canada compared to a year ago. This segments income from operations for the quarter increased to $4.0 million from $3.6 million in the comparable period in fiscal 2013. Ronald D. Croatti, UniFirst President and Chief Executive Officer, stated:

“Overall we were pleased with our results for the quarter. We continue to get solid performances from our sales and service organizations in two areas that are integral to our success; selling new business and retaining existing customer relationships.”

Let me be clear: UniFirst continues to maintain a solid balance sheet and financial position. The company ended the quarter with essentially no long-term debt and cash and cash equivalents of $151.0 million which actually was down from $197.5 million at the end of fiscal 2013. However, this decrease was due to the company’s repayment of $100.0 million in private placement notes that came due in September 2013, so the decline is not that bad at all. The lack of debt is a huge positive. Further, the company has upped its guidance. It now expects full year revenues to be between $1.382 billion and $1.387 billion. It also expects full year earnings per share to be between $5.70 and $5.85 per share. Between Aramark, Cintas, and UniFirst, I have to tip my proverbial hat to UniFirst. I think it is an attractive stock that will move higher in the coming quarters.

Disclosure: Christopher F. Davis holds no positions in any stocks mentioned and has no intention of initiating a position in the next 72 hours. He has a buy rating on UniFirst Corporation and an $121 price target.

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