Republic Services RSG has gained 24% on a year-to-date basis compared with the 23.5% rise of the industry it belongs to and 13.5% rise of the Zacks S&P 500 composite.
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The company has a long-term expected earnings per share (three to five years) growth rate of 9%. Moreover, earnings are expected to register 5.2% growth in 2019 and 9.9% in 2020.
Factors Driving Republic Services
Republic Services continues to grow internally with the help of long-term contracts for collection, recycling and disposal of solid waste materials. Such agreements increase the company’s contracted revenue base, thereby strengthening its market position. Further, the company continues to look out for strategic price increase in order to offset increased costs, improve operating margins and enjoy an appropriate return on its substantial investments in vehicles, equipment, landfills, transfer stations and recycling centers. Increasing demand for the recycling of waste products is another major positive for Republic Services’ business. Notably, first half revenues include a 2.1% impact of internal growth.
The company’s focus on increasing its operational efficiency by shifting to compressed natural gas (CNG) collection vehicles and converting rear-loading trucks to automated-side loaders should help it reduce cost and improve profits. The company is focused on enhancing its operations by streamlining its cost structure, improving revenue quality and seeking growth through profitable investment opportunities. In 2018, almost 13% of the replacement vehicle purchases were CNG vehicles. Meanwhile, the company is highly optimistic about the usage of CNG vehicles, which will help it tocompete effectively on grounds of maintaining a clean environment.
The company has been consistently rewarding its shareholders through dividend payments and share repurchases. In the first half of 2019, Republic Services paid $241.7 million in dividend payments and repurchased 2.6 million shares for $202.5 million. In 2018, the company paid $461.8 million in dividends and repurchased shares worth $736.9 million. Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business.
Risks
Republic Services continues to face weak landfill pricing due to high cost of leachate. This limits the company’s ability to increase prices, necessary for coping with higher costs, improve operating margins and make investments. Operation in a highly competitive solid waste industry remains a major concern. Price increase and profitability expansion becomes difficult under such a fierce competitive situation. High debt may limit the company’s future expansion and worsen its risk profile.
Zacks Rank & Stocks to Consider
Republic Services currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Huron Consulting HURN, Accenture ACN and Fiserv FISV, each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Huron Consulting, Accenture and Fiserv is 13.5%, 10.3% and 12%, respectively.
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