Shares of Cintas gained more than 2 percent in intraday trade Wednesday as analysts upgraded the stock based on its recently announced acquisition of G&K Services.
On Wednesday, Barclays upgraded Cintas to "overweight" from "equal weight" and raised its price target on the stock to $130 from $110. The firm said that while it has "always viewed CTAS as a premium 'Industrials' idea," it has "always looked for M&A as a catalyst to get us over the hump — which we now have with the GK acquisition."
Cintas announced Tuesday that it will be buying all outstanding shares of competitor G&K Services for $97.50 a share in cash. This represents a premium of 18.7 percent from the stock's Aug. 15 close. Including net debt, the deal values G&K around $2.2 billion.
G&K shares were modestly higher in intraday trade.
Cintas will gain 170,000 "new customers to sell its much broader set of offerings" in addition to being able to leverage "a stronger supply chain, sourcing capabilities & additional processing capacity," according to Barclays.
Both stocks are on a tear this year. Cintas has climbed about 27 percent in 2016, while G&K has surged more than 54 percent in the same period.
Disclosure: Barclays and/or an affiliate is a liquidity provider and/or trades regularly in the securities of this issuer and/or in any related derivatives.