The waste management industry is firmly tied to the health of the broader economy, which is currently quite favorable on the back of improving employment scenario, robust manufacturing and non-manufacturing activities along with Trump administration’s business friendly approach. Furthermore, increasing demand for renewable energy and solid waste recycling have opened up revenue generation opportunities for this industry.
Per a report, the global waste management industry is projected to reach $435 billion by 2023, witnessing a CAGR of 6.2% from 2017 to 2023. The buoyancy in the waste management space is further confirmed by its Zacks Industry Rank in the top 40% (103 out of the 250 plus groups).
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two Waste Removal Services stocks – Republic Services Inc. RSG and Stericyle Inc. SRCL. Both the stocks are part of the broader Business Services sector (one of the 16 Zacks sectors). While Republic Services has a market capitalization of $22.78 billion, Stericycle’s market cap is $5.55 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance
Republic Services clearly scores over Stericycle in terms of price performance. Shares of Republic Services have gained 8.4% in a year’s time, outperforming the industry’s rally of 7.4%. Stericycle, in contrast, has declined 17.2% in the same time frame.
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Earnings Expectations
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Republic Services’ current-quarter earnings are projected to grow 29.5% while that of Stericycle are expected to decline 1.7%. Looking at the full-year 2018 picture, Republic Services’ earnings are projected to grow 26.3% while that of Stericycle are expected to increase 6.7%.
For 2019, Republic Services’ earnings are expected to register 9.8% growth compared with 3.4% for Stericycle. Moreover, the long-term expected earnings per share growth rate of 11.1% for Republic Services is higher than Stericycle’s growth rate of 9.6%.
Thus, Republic Services has an edge over Stericycle in terms of quarterly and yearly projected earnings growth.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
Republic Services has performed better than Stericyle, having surpassed the Zacks Consensus Estimate in all the previous four quarters, delivering an average beat of 6%. Stericyle has delivered positive surprise in two of the prior four quarters with an average beat of 0.8%.
Net Margin
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
With a TTM net margin of 13.2%, Republic Services stands on the same footing as the industry. However, it has a lead over Stericycle’s 0.2% TTM net margin.
Valuation
The Price to Earnings Ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.
The trailing 12-month price-to-earnings multiple for Republic Services and Stericyle is 26.4 and 14.5, respectively, while that of the industry is 26.3. Stericyle has an edge as it is undervalued relative to Republic Services and the industry.
Bottom Line
Our comparative analysis shows that Republic Services scores over Stericycle in terms of price performance, expected earnings growth, earnings surprise history and net margin. However, it is overvalued relative to Stericycle and the industry.
So, even though Republic Services seems expensive compared to Stericycle, it is likely to generate higher capital appreciation.
Stocks to Consider
Some better-ranked stocks in the broader Business Services sector include NV5 Global, Inc. NVEE, The Dun & Bradstreet Corporation DNB and FLEETCOR Technologies, Inc. FLT. While Dun & Bradstreet sports a Zacks Rank #1, NV5 Global and FLEETCOR carry a Zacks Rank #2 (Buy).
The long-term expected earnings per share (three to five years) growth rate for NV5 Global, Dun & Bradstreet and FLEETCOR Technologies is 20%, 4.5% and 16.5%, respectively.
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