Headquartered in Wilmington, Mass., UniFirst makes money by supplying and servicing specialty uniform and industrial workwear. Weak oil prices have hurt the industrial sector, and the company -- despite beating Wall Street estimates in seven straight quarters -- has struggled to grow revenue and profits. Its core laundry revenue declined 0.2% in the first quarter, while its gross profit rate decreased 40 basis points.
Still, that hasn't stopped UniFirst stock, which is up 5% year to date. It has outperformed both the S&P 500 (SPX) and the Dow Jones Industrial Average (DJI) . And with oil prices back near $40 per barrel, industrial production should begin to rise. And this not only bodes well for UniFirst's earnings in the next 12 to 18 months, it also makes UniFirst stock a solid buy ahead of Wednesday's results since the company may offer an upbeat outlook.
For the quarter that ended in February, the company is expected to earn $1.26 per share on revenue of $362.62 million, compared to the year-ago quarter, when UniFirst earned $1.37 per share on revenue of $361.46 million. For the full year, ending inAugust, earnings are projected to decline 7.6% year over year to $5.82 per share, while revenue of $1.47 billion would mark a year-over-year increase of 1%.
Weak oil prices have forced many of UniFirst's customers to slash their budgets, making it harder for UniFirst to grow revenue. But UniFirst generates roughly $232 million in operating cash flow, up 15%. The company still maintained its solid balance sheet of $311 million in cash, up 44%, and long-term debt is only $600,000.
What's more, with UniFirst stock currently trading at around $110, the shares are priced at just 17 times forward 2017 earnings per share estimates $6.23, which is in line with the average stock in the S&P 500 index. That suggests that UniFirst is heading back toward long-term growth.
If oil prices can maintain their rally, UniFirst's profit margins should also trend higher. That makes UniFirst stock a bargain at current levels, even after its solid year-to-date performance.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.