Stock Analysis on Net
Stock Analysis on Net

Cintas Corp. (NASDAQ:CTAS) 

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Cintas Corp., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.46%
01 FCFE0 1,656,862
1 FCFE1 2,027,447 = 1,656,862 × (1 + 22.37%) 1,740,964
2 FCFE2 2,438,970 = 2,027,447 × (1 + 20.30%) 1,798,402
3 FCFE3 2,883,558 = 2,438,970 × (1 + 18.23%) 1,825,783
4 FCFE4 3,349,522 = 2,883,558 × (1 + 16.16%) 1,821,141
5 FCFE5 3,821,478 = 3,349,522 × (1 + 14.09%) 1,784,153
5 Terminal value (TV5) 184,336,229 = 3,821,478 × (1 + 14.09%) ÷ (16.46% – 14.09%) 86,062,021
Intrinsic value of Cintas Corp. common stock 95,032,465
 
Intrinsic value of Cintas Corp. common stock (per share) $235.49
Current share price $198.05

Based on: 10-K (reporting date: 2024-05-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.90%
Expected rate of return on market portfolio2 E(RM) 13.94%
Systematic risk of Cintas Corp. common stock βCTAS 1.28
 
Required rate of return on Cintas Corp. common stock3 rCTAS 16.46%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCTAS = RF + βCTAS [E(RM) – RF]
= 4.90% + 1.28 [13.94% – 4.90%]
= 16.46%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Cintas Corp., PRAT model

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Average May 31, 2024 May 31, 2023 May 31, 2022 May 31, 2021 May 31, 2020 May 31, 2019
Selected Financial Data (US$ in thousands)
Dividends 550,952 469,858 393,609 530,462 267,956 220,764
Net income 1,571,592 1,348,010 1,235,757 1,110,968 876,037 884,981
Revenue 9,596,615 8,815,769 7,854,459 7,116,340 7,085,120 6,892,303
Total assets 9,168,817 8,546,356 8,147,256 8,236,823 7,669,885 7,436,662
Shareholders’ equity 4,316,372 3,863,986 3,308,196 3,687,847 3,235,202 3,002,721
Financial Ratios
Retention rate1 0.65 0.65 0.68 0.52 0.69 0.75
Profit margin2 16.38% 15.29% 15.73% 15.61% 12.36% 12.84%
Asset turnover3 1.05 1.03 0.96 0.86 0.92 0.93
Financial leverage4 2.12 2.21 2.46 2.23 2.37 2.48
Averages
Retention rate 0.69
Profit margin 14.70%
Asset turnover 0.96
Financial leverage 2.31
 
FCFE growth rate (g)5 22.37%

Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).

2024 Calculations

1 Retention rate = (Net income – Dividends) ÷ Net income
= (1,571,592 – 550,952) ÷ 1,571,592
= 0.65

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 1,571,592 ÷ 9,596,615
= 16.38%

3 Asset turnover = Revenue ÷ Total assets
= 9,596,615 ÷ 9,168,817
= 1.05

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 9,168,817 ÷ 4,316,372
= 2.12

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.69 × 14.70% × 0.96 × 2.31
= 22.37%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (79,921,876 × 16.46% – 1,656,862) ÷ (79,921,876 + 1,656,862)
= 14.09%

where:
Equity market value0 = current market value of Cintas Corp. common stock (US$ in thousands)
FCFE0 = the last year Cintas Corp. free cash flow to equity (US$ in thousands)
r = required rate of return on Cintas Corp. common stock

FCFE growth rate (g) forecast

Cintas Corp., H-model

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Year Value gt
1 g1 22.37%
2 g2 20.30%
3 g3 18.23%
4 g4 16.16%
5 and thereafter g5 14.09%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 22.37% + (14.09% – 22.37%) × (2 – 1) ÷ (5 – 1)
= 20.30%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 22.37% + (14.09% – 22.37%) × (3 – 1) ÷ (5 – 1)
= 18.23%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 22.37% + (14.09% – 22.37%) × (4 – 1) ÷ (5 – 1)
= 16.16%