Republic Services Banks On Internal Growth, Debt Woes Stay

Republic Services, Inc. (NYSE:RSG) is currently benefitting from solid demand for the recycling of waste products and strong internal growth, which are boosting the top line.

Recently, the company delivered mixed fourth-quarter 2018 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. Adjusted earnings per share (EPS) of 80 cents outpaced the consensus mark by 2 cents and improved 31.1% year over year. Revenues of $2.53 billion lagged the Zacks Consensus Estimate by $6.2 million but improved 2.6% year over year on a pro-forma basis.

Republic Services has an impressive surprise history. The company beat estimates in each of the trailing four quarters, the average being 2.8%. For the first quarter of 2019, the consensus mark is unchanged at 75 cents per share in the past 60 days.

Factors that Bode Well for the Company

Republic Services continues to grow internally on the back of long-term contracts for the collection, recycling and disposal of solid waste materials. Such agreements increase the company’s contracted revenue base and strengthen market position. Notably, in 2018, revenue growth included a positive impact of 2.5% internal growth. Increasing demand for the recycling of waste products is another major positive for the company.

Furthermore, the company focuses on improving operational efficiency by shifting to compressed natural gas (CNG) collection vehicles and converting rear-loading trucks to automated-side loaders, which reduce cost and improve profitability. In 2018, almost 13% of the replacement vehicle purchases were CNG vehicles.

Moreover, we are impressed with Republic Services’ consistent record of returning value to shareholders in the form of dividend and share repurchases. The company paid dividends of $461.8 million, $440.5 million and $418.9 million in 2018, 2017 and 2016, respectively. Also, the company repurchased shares worth $736.9 million, $610.7 million and $403.8 million in 2018, 2017 and 2016, respectively. Such moves reflect the company’s commitment to create value for shareholders and underline confidence in the business.

Risks

Republic Services continues to face weak landfill pricing due to high cost of landfills and leachate. This limits the company’s ability to increase prices, improve operating margins and make necessary investments.

Also, the company has a debt-laden balance sheet which may limit future expansion and worsen its risk profile. As of Dec 31, 2018, long-term debt (net of current maturities) was $7.65 billion while cash and cash equivalents were $70.5 million.

Zacks Rank & Stocks to Consider

Currently, Republic Services carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the Zacks Business Services sector are General Finance Corporation (NASDAQ:GFN) , National CineMedia, Inc. (NASDAQ:NCMI) and Everi Holdings Inc. (NYSE:EVRI) , each carrying a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for General Finance Corporation, National CineMedia and Everi Holdings is 14.3%, 38.5% and 20%, respectively.

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