Cintas Corporation (CTAS) could be on its way to higher highs
Business services provider Cintas Corporation (NASDAQ:CTAS) spiked to a record high of $117.65 on Tuesday, after the company announced it will acquire sector peer G&K Services Inc (NASDAQ:GK) in a $2.2 billion deal. Today, helped by a round of bullish brokerage attention, CTAS is still riding higher, last seen up 2.1% at $115.32 -- and shaking off news that Moody's has placed the firm's credit ratings under review for downgrade. And given the pessimism surrounding the stock, a shift in sentiment could see the shares floating to higher highs.
Specifically, a bearish outlook has been the norm among the brokerage bunch, where three-quarters of the analysts tracking CTAS rated the stock a "hold" or worse at last night's close. Plus, the consensus 12-month price target of $111.13 sits at a discount to current trading levels.
Short interest has also been a thorn in CTAS' side, hovering at roughly 5 million shares, or nearly 6% of the stock's available float. At the equity's typical daily trading levels, it would take a week to buy back all these bearish positions.
Things haven't looked much rosier in the options pits, though volume is typically light on an absolute basis. Put buying more than doubled call buying over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting put/call volume ratio of 2.24 sits higher than 71% of the past year's readings. Likewise, CTAS' Schaeffer's put/call open interest ratio (SOIR) of 1.52 -- in the 78th percentile of its annual range -- shows near-term options traders have been unusually put-skewed toward the stock.
Today, however, CTAS calls have taken the lead, roughly quadrupling puts. In fact, call volume is on pace to finish in the 99th percentile of its 12-month range, as calls change hands at five times their expected pace for this point in the day, thanks to demand at the stock's August 115 strike. Also notable is total open interest, currently seated at an annual high.
Technically, the skepticism toward CTAS seems unfounded. The stock has added nearly 27% so far in 2016, sailing upward atop support from its 10-week moving average, and gapping higher after its late-July earnings report. It looks like the tide may be started to turn, though. Specifically, Barclays and Baird raised their ratings on Cintas Corporation (NASDAQ:CTAS) to the equivalent of a "buy," and were joined by Nomura in raising their price targets.
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