Despite its already-high valuation, Cintas (NASDAQ: CTAS) can scale new highs in 2023. Its FQ4 results and guidance confirm the business trajectory's growing and widening margin. 

As highly valued as the stock is, the share price may pull back to more substantial support levels before it sets a new high. Cintas stock is in a sustained uptrend driven by capital and distribution growth, but the expected price pullbacks punctuate the uptrend. The problem is that trading 5.5% above the 150-day EMA is ripe for a correction. The good news is that a correction is a buying opportunity for double-digit total returns. 

Total returns count with Cintas because the dividend is not a large yield. The stock tends to yield 1% or less, paying about 0.93% with shares near $485, so a pullback in the price action would benefit new investors. A move to the $460 level would put the yield back at the high end of the range, but the attraction lies in the other dividend stats. Cintas has increased its dividend for 40 years and can easily sustain it. 

The company pays about 37% of its earnings guidance, which aligns with the consensus figures and leaves ample for future increases without earnings growth. Earnings growth keeps up with distribution increases and maintains a healthy ratio. 

The dividend increases have helped sustain the stock price uptrend, aided by share repurchases. Repurchases slowed in FQ4 but remain robust at $0.400 billion or about 0.8% of the pre-release market cap. Based on the balance sheet and FCF position, the company should be able to sustain repurchases in the foreseeable future. 

Cintas stock is up almost 1,000% over the last 10 years and is on track to deliver the same over the next 10. The next distribution increase is expected in the current time frame and would catalyze higher share prices. 

Cintas Outperforms in Q4, Shares Wobble 

Cintas reported $2.28 billion in net revenue for a gain of 10% compared to last year. The revenue beat by 130 basis points, accompanied by a better-than-expected margin. Revenue drove an 8% increase in core uniform business, amplified by a 15% increase in the Other category. Organically, revenue is up 10.3% and offset by slight FX headwinds.

The margin news is better. The company widened the margin at the gross and operating levels to deliver a better-than-expected bottom-line figure. The GAAP $3.39 is up 18.5% compared to last year and outpaced consensus by almost 600 basis points, leading the company to issue favorable guidance for 2024. 

Growth will slow in 2024 but remain solid at 6% at the low end of the range. The low end of the range is $9.35 billion in revenue compared to the $9.38 consensus and the top end of $9.50 billion. Earnings are also expected in a range bracketing the consensus, which is good news but not a catalyst to rally. 

Analysts Lead Cintas Higher 

MarketBeat hasn't published any new analyst coverage on Cintas yet, but the analysts' trends are encouraging. The analysts were upping their targets and ratings throughout the early summer, putting the consensus rating at "hold" and the price target at $507. If reached, that's about 4% above the current action and a new high. Assuming that trend continues, the stock will hit a new high — the only question is when. 

The chart shows a clear uptrend that has reached a peak. The action entered consolidation a few weeks ago and is yet to break out. The stock could continue higher from here; a move to new highs would trigger more buying. If not, a move toward or to the $160 level would be an attractive entry point.