I remember Peter Lynch saying in his famous book One Up On Wall Street that companies in industries considered boring could often be undervalued. This offered investors the chance to find shares at a good price. It's true that waste management, elevator installation, flooring installation, termite extermination, degreaser marketing and work uniform rental aren't exactly the stuff of dreams. And yet, behind this spleen sometimes lie high-quality, well-managed companies that put a smile on their shareholders' faces. This is the case of the 6 companies we're going to discover today.
Cintas Corporation, uniforms
Let's start with Cintas Corporation, an American leader in the design, manufacture and marketing of work uniforms. The company, based in DeSoto, Texas, generates the majority of its sales (78.2%) from uniform rentals, and also offers washroom cleaning services. In addition, Cintas offers first aid and security services (10.8%) and other miscellaneous services (11%). Cintas achieves particularly high margins before interest, taxes, depreciation and amortization. The company has consistently exceeded analysts' expectations, with positive surprise rates. Analysts have a clear vision of the company's future earnings, which boosts investor confidence. However, the stock is trading at relatively high earnings multiples, which could limit short-term upside potential. Dividend yields are low, which may not attract investors looking for regular income. For fiscal year 2025, Cintas forecasts sales of between 10.16 and 10.31 billion USD, with expected organic growth of between 6.4% and 8%. Earnings per share (EPS) are estimated at between 16.25 and 16.75 USD, representing growth of 7.3% to 10.6%. Analysts remain generally positive on the stock, with an average recommendation of Accumulate. The average price target is USD 758.91, slightly below the current price, suggesting a valuation already incorporated by the market. Cintas Corporation has solid fundamentals and a well-defined growth strategy. Despite its high valuation, the company offers exceptional visibility and robust profitability. Investors looking for a stable company with long-term growth potential may find Cintas an attractive opportunity. However, close monitoring of valuation multiples and market trends is recommended to optimize entry timing.
Otis Worldwide Corporation, elevators
Otis Worldwide is a major player in the heavy industrial equipment sector, specializing in the manufacture, installation and maintenance of elevator systems. The company is headquartered in Farmington, Connecticut. Otis offers a range of products, including elevators, escalators and moving walkways, for a variety of building types, including residential buildings, shopping malls, public transportation facilities, hotels, hospitals and industrial buildings. Otis generates its revenues mainly from two segments: maintenance and repair services (59.1%) and the sale of lifting systems (40.9%). For 2024, Otis forecasts sales of between 14.3 and 14.5 billion USD, revised slightly downwards due to weaker demand in North America and China. However, the service segment continues to grow, with maintenance and repair sales up 3% in the second quarter of 2024. Otis recently declared a quarterly dividend of USD 0.39 per share, payable on September 6, 2024. The company has paid consecutive dividends over the past three years, demonstrating its financial stability. Analysts are generally positive on Otis, with an average recommendation of Accumulate. The average price target is USD 100.56, representing a potential upside of 6.42% from the last closing price of USD 94.5. Wolfe Research and Argus recently raised their price targets to USD109 and USD108 respectively. Note the strong visibility on future business, thanks to stable revenue estimates and continued growth in the service segment, with a 4.2% increase in the maintenance portfolio. Beware, however, of relatively low sales growth and high debt-to-EBITDA ratios. Otis presents an attractive investment opportunity, thanks in particular to the stability of its service segment and its ability to generate solid cash flows. However, investors should be aware of the challenges associated with the company's sales growth and indebtedness. The short-term outlook remains positive, underpinned by effective management and a well-defined growth strategy.
Floor & Decor Holdings, floor coverings
is a major player in the cyclical consumer goods sector, more specifically in the building materials trade. Floor & Decor's presence in Warren Buffett's portfolio is good news. The company specializes in the sale of hard floor coverings and related accessories through a network of 221 warehouse stores and five design studios in 36 US states. The company offers a wide range of products, including tile, wood, laminate, vinyl and natural stone, as well as decorative accessories and installation materials. Its customers range from professional installers and commercial companies to individuals, whether DIYers or buyers for professional installation (BIY). Historically, Floor & Decor has often exceeded expectations in terms of sales figures. However, the company's current valuation is considered high, with a PER of 53.5x for 2024. Analysts have lowered their sales and earnings forecasts for the past 12 months, reflecting a less optimistic growth outlook. In addition, analysts' average price target has been sharply revised downwards over the past four months. Floor & Decor Holdings has solid fundamentals and a leading position in the floor coverings sector. However, the high valuation and downward revisions to sales and earnings forecasts raise questions about future growth. Potential investors should keep a close eye on upcoming earnings releases to assess the company's ability to maintain its performance in an uncertain economic environment.
Rollins, the fight against termites
Rollins is a major player in the industrial and commercial services sector, specializing in pest control. Headquartered in Atlanta, the company offers pest and pest eradication services for homes and businesses. Rollins is also active in termite extermination. The company generates 92.7% of its sales in the United States. Revenues are divided between residential services (46%), commercial services (33%) and termite extermination (20%). For 2023, Rollins reported sales of $3.073 billion, up from $2.696 billion in 2022. EBITDA also increased, from $593 million in 2022 to $705 million in 2023. Net income was $435 million, representing a net margin of 14.1%. Over the past 12 months, Rollins shares have fluctuated between $32.19 and $47.91. The one-year performance is +17.34%. The price/earnings ratio (P/E) is 49.1x, which is high compared with the sector average. Rollins adopts an aggressive external growth strategy, having acquired over one hundred companies in the last three years. In 2023, the acquisition of Fox Pest Control for $339.5 million strengthened its leadership position. The company forecasts organic growth of over 7% and revenue growth of over 14% for 2024. Strengths include high margins and strong profitability, excellent visibility on future business and a track record of better-than-expected publications. Weak points include high valuation in terms of earnings multiples and cash flow generation, as well as low dividend payout. This company stands out for its resilience and ability to grow despite economic fluctuations. Its acquisition strategy and stable family management make it a safe bet for investors looking for stability and long-term growth. Solid financial results and prospects for sustained growth reinforce this position. Potential investors should, however, consider the high valuation before making an investment decision.
WD-40 Company, the degreaser
WD-40 Company is a global specialist in cleaning and maintenance products. Based in San Diego, it markets a wide range of products under various brand names, such as WD-40 Multi-Use Product, WD-40 Specialist, 3-IN-ONE, and many others. These products are sold in over 176 countries, and are used in workshops, factories and homes all over the world. For the third quarter of fiscal 2024, WD-40 reported net sales of $155 million, up 9% year-on-year. Earnings per share (EPS) reached $1.46, up from $1.38 the previous year. These results exceeded analysts' expectations, who had forecast EPS of $1.27. Sales of cleaning products, which account for 93.73% of total sales, rose by 10%. Cleaning and home care products, although accounting for a smaller share (6.27%), also made a positive contribution. Gross margin improved from 50.6% to 53.1%, thanks to better cost management and increased sales of premium products. Sales in the United States, which account for 38.65% of total sales, fell slightly by 2% due to the previous year's strong performance. By contrast, sales in Latin America rose by 51%, mainly thanks to the transition to a direct distribution model in Brazil. In Europe, Middle East and Africa (EMEA), sales rose by 13%, while the Asia-Pacific region recorded growth of 14%. WD-40 management forecasts annual sales of between $570 and $600 million for fiscal 2024. However, the share's valuation, currently at 50.07 times expected earnings, remains a point of debate among analysts. Although the company has shown solid growth, this high valuation could limit upside potential in the short term. WD-40 Company continues to show signs of robust growth and improving profitability. However, investors should be aware of the share's high valuation. Upcoming earnings releases and strategic developments, including the sale of cleaning product brands, will be key elements to watch.
Waste Connections, waste management
Waste Connections is a Canadian company specializing in integrated solid waste management. It offers non-hazardous waste collection, transfer and disposal services, as well as recycling and renewable fuel production. The company serves more than nine million residential, commercial and industrial customers across various geographic segments, including the South, West, Central, East, Canada and Mid-South. Waste Connections' residential services include garbage collection, yard waste collection, recycling, dumpster rental and portable toilets. On the commercial side, the company offers waste collection, recycling, shredding and roll-off dumpster rental. It also provides treatment and disposal services for non-hazardous petroleum waste in the United States, as well as intermodal services for the transportation of solid waste containers in the Pacific Northwest. For the second quarter of 2024, Waste Connections reported revenues of USD 2.25 billion, up 11% year-on-year. Adjusted earnings per share came to USD 1.24, beating analysts' expectations of USD 1.17. Adjusted EBITDA came to USD 731.8 million, representing a margin of 32.6%, up 150 basis points on the previous year. The company has raised its guidance for 2024, now anticipating revenues of around 8.85 billion USD and adjusted EBITDA of 2.9 billion USD, or a margin of 32.8%. This upward revision is mainly due to recent acquisitions and an increase in recycled material values. Waste Connections' strengths include high EBITDA margins and a strong upward revision of share price targets by analysts. However, the company's valuation is high, with a PER of 50.6x for 2023, and its financial position is considered weak by some analysts. The company continues to stand out for its strategic acquisitions and geographic expansion. With its solid financial performance and promising growth prospects, Waste Connections represents an attractive investment opportunity in the waste management sector. Potential investors should, however, be aware of the challenges associated with the company's high valuation and financial situation.
Performance (in total return = dividends reinvested) since August 15, 2017 for the six stocks:
