Cintas Tumbles After Lehman Downgrade

Gary Bisbee lowered Cintas to "Equal Weight" from "Overweight" in a note to investors on Friday. Shares of Cintas shed $1.52, or 5.2 percent, to $27.72 at midday. Earlier in the session, the stock hit a fresh 52-week low of $27.31.

Bisbee said the Cincinnati-based company's core business of making and laundering corporate uniforms which accounted for 74 percent of revenue in 2007 is closely tied to performance in the broader U.S. economy, particularly the industrial sector. Both are in a state of decline, Bisbee said.

The gradual transition in the U.S. economy over the past several decades toward the service sector and away from traditional manufacturing has been difficult for Cintas, which relies heavily on the manufacturing sector for sales of its uniforms, he said.

The analyst also noted that rising energy prices have raised the cost of operating Cintas' delivery fleet, and increased labor benefit costs are eroding the company's bottom line.

Bisbee was also cautious on Cintas' move into other businesses, adding that its first-aid and fire-protection segment in particular has been hampered by weak sales.

"We believe this example highlights the risks of straying too far from the company's core competencies," Bisbee said.

Bisbee cut his fiscal 2009 earnings outlook for Cintas to $2.24 from $2.29 and also lowered his price target to $32 from $35.

Wall Street expects 2008 profits of $2.14 per share, on average, according to a poll of analysts by Thomson Financial.