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Bought 1,500 CTAS at 36.75
CTAS is a leader in the uniform rental business and has grown steadily and profitably, with a continuing stream of acquisitions of smaller players. The slowdown in US manufacturing, where most of their customers are, has caused a slowdown in growth and put pressure on margins. The stock is now trading on the low end of its historic ranges of Earnings/5 Year Average EPS or Price/Sales.
Management has addressed the problem by branching out into Other Services,such as first aid, fire safety, and document storage. The size of their existing customer base offers opportunites to sell new services. Also, they are in the process of reorganizing sales to develop more internal growth and to expand the sales of ancillary products. This reorganizaion has taken longer than they anticipated.
I think growth will improve over the next two years, as the benefits of the sales restructuring develop and internal growth increases. The Other Serivces Segment grew 16.5% in fiscal year 2007 over 2006, and 18.6% in 2006 over 2005, and now generates 26.2% of their revenue. I regard this as evidence that they still have room to expand. Based on this, I think the stock should increase to 45-50 within 1 to 2 years.
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