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Bull of the Day: UniFirst Corp (UNF)


Unifirst Corporation (UNF), a Zacks Rank #1 (Strong Buy), is an industry leader and remains one of the fastest growing companies in the Uniform and Textile Services business. Its business is the rental Lease and Sale of work clothing, uniforms, protective apparel, careerwear, and facility service products to businesses in virtually all industrial categories. The major portion of the Company's business is Uniform Rental Service Programs, wherein it provides customers with all necessary products plus weekly cleaning, maintenance, and any needed replacements of work clothing.

Recent Earnings Results

The company reported Q2 18 results where they beat the Zacks consensus earnings and revenue estimates for the fifth consecutive quarter. On a year over year basis, earnings grew by +25.5% while revenues rose by +7.2%. The core laundry segment saw revenues increase by +5.7% with operating margins improved to +10% from +9.2% in the year ago quarter. The revenues in the specialty garment rose by +24% with operating income increasing by +33.3%. UNF has also experienced impressive organic growth in its core uniform rental area, as it was up +5%, well above the expected increase of +3%. Lastly, the company ended the quarter with $387.7 million in cash, cash equivalents, and short term investments.

Positive Drivers

After 15 years of inactivity management announced its first new capital allocation plan. This plan included repurchasing 1.178 million shares, and an increase in its dividend; from $0.0375 to $0.1125 per share. One of the big drivers behind the plan was the consistent growth of the company’s cash flows.

Further, due to higher than expected specialty garment sales, and the benefit of a lower corporate tax rate management increased both FY 18 EPS, and revenue guidance. EPS guidance was increased from a range of $5.10-5.30 to $7.45-7.65, and revenue guidance was lifted from a range of $1.63-1.65 billion to $1.66-1.67 billion.

Management’s Take

According to Steve Sintros, President and CEO, “I am pleased with the results of the quarter and the first half of the year. I want to take this opportunity to thank our thousands of Team Partners across North America and Europe for their combined efforts in helping us achieve these results while continuing their primary focus of providing high quality products and services to our customers.”

Price and Earnings Consensus Graph

As you can see in the graph below the stock price has been on a fairly consistent upwards trend since the beginning of 2016. Further, FY 18 earnings estimates have spiked up after the quarterly earnings report.

Unifirst Corporation Price and Consensus

Unifirst Corporation Price and Consensus | Unifirst Corporation Quote

Increasing Earnings Estimates

Over the past 30 days, earnings estimates for Q3 18, Q4 18, FY 18 and FY 19 have all been positively revised; Q3 18 improved from $1.31 to $1.50, Q4 18 rose from $1.36 to $1.54, FY 18 was lifted from $5.52 to $6.64, and FY 19 increased from $6.04 to $6.99.

Bottom Line

The capital allocation announcement was a very nice development after 15 years of dormancy, as the company’s improvement in cash flow enabled this plan. Also, the continued revenue growth in the specialty garment segment has been impressive especially with the expectations of increased growth in the second half of 2018.

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