How Zika Could Boost ServiceMaster Shares

• Amid significant volatility, Servicemaster Global Holdings Inc SERV shares have gained 11 percent since November 18.
• Piper Jaffray’s George K. Tong maintained an Overweight rating for the company, with a price target of $48.
• The rise in reported Zika cases could boost demand for the company’s mosquito control solutions, Tong stated.

The Zika virus, which is spread by the Aedes aegypti mosquito, is known to cause a number of ailments, including headaches, a maculopapular rash, fever, malaise, conjunctivitis, and joint pains. The virus is also associated with several symptoms, including Guillain-Barré syndrome and microcephaly.

“Given the potentially severe symptoms of infection and lack of vaccine, we believe consumers will seek out mosquito control solutions at a more elevated rate to help prevent transmission of the disease,” analyst George Tong wrote.

Notably, the vector of transmission, which is the Aedes aegypti mosquito, spreads from South America to as far north as the Great Lakes in the Midwest. This bread of mosquitos has increased over the past several decades.

“A greater geographic dispersion of the vector of disease transmission creates increased risk of infection and stronger urgency for preventative mosquito control measures to be taken,” Tong mentioned.

The analyst believes that the situation could boost demand for mosquito control solutions offered by Terminix. Terminix organic revenue growth is estimated at around 3.5 percent for 2016, and the Zika outbreak could drive upside potential of 25-50 bps in Terminix revenue growth this year.

“We believe upside in Terminix, along with robust American Home Shield growth, margin expansion and financial de-levering, will contribute to valuation multiple expansion at ServiceMaster from 11x 2016E EBITDA currently to 13.5x,” Tong commented.