On Friday, Morgan Stanley adjusted its stance on Republic Services (NYSE:RSG), downgrading the stock from Overweight to Equalweight, though the firm raised the price target to $193 from $186. The shift in rating comes after Republic Services showed a 12% year-over-year outperformance against the S&P 500 and its industry peers in the waste management sector.
The investment firm acknowledged Republic Services as a leading waste provider of high quality but noted that the risk/reward profile appears balanced at this point. The company's stock is currently trading at approximately 15 times Morgan Stanley's 2024 earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) estimates, which is two standard deviations above the five-year average for the next twelve months (NTM) EV/EBITDA.
Morgan Stanley also remarked on the broader industry trends, pointing out that although pricing in the waste management industry remains strong, surpassing pre-pandemic levels, there is an anticipation that pricing growth will moderate as inflation returns to normal levels.
In the context of the sector, Morgan Stanley suggested Waste Connections (NYSE:NYSE:WCN) as a more attractive investment opportunity, citing that its NTM EV/EBITDA multiple aligns with its historical average. Despite the downgrade, Morgan Stanley maintains a $199 price target on Republic Services, indicating a potential upside of around 7% from the current share price.
This price target is based on a 14.3 times multiple of the firm's projected 2025 EV/EBITDA, which is consistent with Waste Management (NYSE:WM)'s current multiple and two turns below that of Waste Connections.
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