Shares of waste management firm Republic Services, Inc. RSG scaled a new 52-week high of $69.12 during yesterday’s trading session, before closing a tad lower at $68.44 for a healthy return of 19.6% in the past year. This Zacks Rank #3 (Hold) stock has the potential for further price appreciation with long-term earnings growth expectation of 8.5%.
Growth Drivers
Republic Services is currently focusing on a series of quality acquisition opportunities, primarily of recycling assets, which are likely to act as a catalyst for a healthy long-term growth within its top 25 markets. The company is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy return on investment.
During third-quarter 2017, Republic Services acquired ReCommunity Holdings II, Inc. — the largest independent recycling-processing firm in the United States — for an undisclosed amount. The strategic acquisition is likely to offer an unrivalled competitive advantage in the recycling business that continues to be one of the fastest growing segments of the waste stream. In addition, the deal will also facilitate Republic Services to gain control of multiple long-term municipal agreements of ReCommunity with processing fee-based structures. These agreements align perfectly with the company’s innovative recycling pricing model and are likely to generate incremental revenues.
Moreover, Republic Services has pledged its commitment to the Blue Planet sustainability initiative that aims at increasing its recycling capacity by an additional 150,000 tons or more per year by 2018. As part of this initiative, the company is steadily building durable practices and programs to further improve its environmental and social impacts through decreased vehicle emissions, innovative landfill technologies, more use of renewable energy and community engagements.
In addition, Republic Services continues to generate significant free cash flow, which is utilized for increased dividend payment, repurchasing shares and strategic acquisitions. Over the years, the company has returned significant cash to its shareholders through dividends or share repurchases. It has always boasted a conservative balance sheet with a healthy liquidity position. The stock has performed almost in line with the industry in the last three months with an average return of 7.4% compared with 7.5% gain for the latter.
Moving forward, it aims to focus on prudent investment decisions for a disciplined capital allocation, strong and flexible balance sheet position and cash flow enhancement to support dividend growth. Such moves, along with a robust operating platform and an efficient management team will likely help in the execution of its strategic priorities and drive net asset value in the future.
All these factors probably raised investor confidence and drove the company’s shares to a fresh 52-week high.
Stocks to Consider
Better-ranked stocks in the industry include Black Knight, Inc. BKI, IHS Markit Ltd. INFO and S&P Global Inc. SPGI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Black Knight has a long-term earnings growth expectation of 13.7%. It topped earnings estimates twice in the trailing four quarters with a positive surprise of 2.4%.
IHS Markit has a long-term earnings growth expectation of 11.7%. It topped estimates twice in the trailing four quarters with an average positive earnings surprise of 2.4%.
S&P Global has a long-term earnings growth expectation of 12.5%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 11.1%.
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