## Double-Digit Gains Ahead? Top 2 Stocks Positioned to Outperform in 2025
Despite a year of mixed economic signals, the overall picture remains positive, with robust GDP growth indicating a healthy business environment. This is particularly good news for business services companies, which play a crucial role in supporting other businesses by offering products and services that streamline operations, reduce costs, and enhance efficiency. This, in turn, helps businesses sustain margins in critical industries.
For investors looking for promising opportunities, business services companies are particularly attractive. Not only do they benefit from economic tailwinds, but they also generate ample cash flow and reward investors with attractive dividend payments. The market action in 2024 suggests these companies are primed for double-digit gains in 2025, further boosted by their strong dividend payouts.
Cintas: Helping America’s Workforce Look Good
Cintas (CTAS) is a leading player in the uniform and facility services industry, providing a wide range of services to businesses across various sectors. The company’s decades-long success is attributed to a strategic combination of organic growth and acquisitions, allowing them to consolidate a fragmented market while deepening their presence in existing territories.
The company operates through two primary segments: Uniforms and Other. The ‘Other’ segment encompasses facility services, including mats, rugs, bathroom supplies, first aid and safety, fire protection, personal protective equipment (PPE), and compliance.
Cintas has demonstrated consistent performance in 2024, exhibiting high-single-digit revenue growth, expanding margins, and exceeding expectations. This positive momentum has continued into the first fiscal quarter of 2025. The company’s guidance for the full year anticipates sequential revenue acceleration from the 6.5% growth achieved in Q1, resulting in an impressive 11.4% revenue gain for the year. The company also expects a slight margin expansion at the midpoint range.
Cash flow is a key strength for Cintas, providing them with the flexibility to increase their annual dividend payments and repurchase shares. The company is a Dividend Aristocrat, a designation awarded to companies with a history of consistently increasing their dividends for at least 25 years. Cintas’ strong growth outlook and robust balance sheet ensure they can sustain their dividend growth indefinitely. The current dividend payout stands at $1.56 per share, representing a yield of approximately 0.75%, and is projected to grow at a solid double-digit pace in 2025.
Cintas’ balance sheet at the end of FQ1 2025 reflects a decrease in shareholder equity, but this reduction is more than offset by a significant increase in treasury shares. The company’s share repurchase program has reduced the outstanding share count by 1%, creating a positive tailwind that is expected to contribute to strong market performance in 2025.
The consensus target price for Cintas, as set by analysts, suggests a fair value near $205, but has experienced a remarkable 50% increase over the past year. This upward revision, driven by positive developments, has pushed the target price to new all-time highs. The high-end range of analyst estimates currently sits near $245, representing a 20% increase from the consensus target, highlighting the strong potential for future upside.
Fastenal Manages Inventory For Manufacturing Industries
Fastenal (FAST) is a leading provider of fasteners, ranging from common nails to highly specialized fasteners for automotive, aerospace, and industrial applications. The company is also a leader in inventory management and cost control, offering a comprehensive suite of on-site, near-site, and remote services.
Fastenal’s core expertise lies in managing inventories of business-related supplies, including but not limited to fasteners. Their on-site solutions cater to a diverse range of needs, from small to medium-sized inventories. These supplies can be stored and labeled with RFID or other tracking tools, or delivered through automated vending applications. This ensures employees have quick and easy access to the materials they need, streamlining operations and minimizing downtime. Fastenal’s approach not only enhances efficiency for their clients but also provides them with granular data on inventory usage, enabling better cost control and procurement planning.
Fastenal’s 2024 results have been characterized by sustained growth, with a notable acceleration in Q3. While the company’s core fastener business has faced headwinds due to macroeconomic conditions, this impact has been offset by the strong performance of the safety and maintenance segment. Looking ahead to 2025, Fastenal expects growth to accelerate as macroeconomic headwinds, such as the Federal Reserve’s interest rate policy, begin to ease. Analysts forecast a 7.5% increase in revenue and an 8% rise in earnings for the year.
Fastenal’s capital return strategy is focused solely on dividends. The company currently pays an annual dividend of $1.56, representing a yield of around 2% with shares trading near $77. While the company can sustain dividend growth, the pace may be slower than in recent years. Despite a payout ratio nearing 75%, this is not a significant concern given the company’s healthy balance sheet.
Fastenal’s Q3 2024 results showcased a strong financial position, with increased cash, inventory, and assets, coupled with a decrease in debt. The company’s leverage has declined, with long-term debt now less than 0.5X cash, while equity has risen by 7.5%.
Analysts currently rate Fastenal as a Hold, viewing the company as fairly valued trading near its all-time high. However, recent upward revisions suggest new all-time highs are on the horizon. The consensus target price has increased by nearly 30% over the past year and by an additional 10% following the Q3 results. The latest target estimates are now 15% above the critical resistance target, indicating a strong upward trajectory.
In conclusion, both Cintas and Fastenal offer compelling investment opportunities for investors seeking growth and dividend income. Their strong fundamentals, favorable market dynamics, and positive analyst sentiment suggest these companies are well-positioned to deliver double-digit returns in 2025.
