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Republic Services Is A 'Well-Run Industry Leader,' But Has Limited Near-Term Upside

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Republic Services Is A 'Well-Run Industry Leader,' But Has Limited Near-Term Upside

Argus Research has initiated coverage of Republic Services, Inc. (NYSE: RSG) with a Hold rating, saying that although the waste management company is "well-run," it sees limited near-term upside for the stock.

"We view RSG as a well-run company, but expect only modest increases in revenue and earnings over the next several years given prospects for limited economic and demographic growth," analyst John Eade wrote.

Expectations

The analyst expects 2016 adjusted EPS of $2.16, up 4.9 percent from $2.06 in 2015, and projects revenue to increase 2.9 percent to $9.4 billion. For 2017, Eade sees EPS to increase by an additional 8.8 percent to $2.35 on a further 3 percent growth in revenue.

Company Strengths

Eade noted that Republic Services tends to post stable results despite being sensitive to economic conditions. Over the past five years, the company delivered compound annual revenue growth of 2.4 percent, and adjusted EPS growth of 9.3 percent.

Related Link: Credit Suisse Says Waste Connections, Republic Services Most Likely Acquirers If Progressive Waste Sells

"Our financial strength ranking on Republic Services is Medium, the middle rank on our five-point scale. The company scores high on profitability, as its 16.1 percent operating margin is above the average of 13.3 percent for peers in the commercial services and supplies industry," Eade highlighted.

However, the analyst noted that the company's 9.4 percent return on equity lags behind the peer average of 18.5 percent, and its long-term debt/cap ratio of 49.3 percent is slightly above the peer average of 47.3 percent.

Dividends

Republic Services pays a dividend of $1.20 a share annually and generates a yield of about 2.5 percent.

"We think the dividend is secure and likely to grow, as RSG typically generates strong levels of cash flow," said Eade, who projects a dividend of $1.23 for 2016 and $1.29 for 2017.

Looking Forward

However, the analyst sees limited near-term upside for the stock, as he believes "the stock is fully valued at 22-times our 2016 EPS estimate, just above the five-year average multiple of 21.3."

Based on projected 2016 EPS and the analyst's five-year earnings growth rate forecast of 7 percent, the stock is also trading at a PEG ratio of 3.1, slightly below the average of 3.4 for peer companies in the commercial services and supplies industry.

According to TipRanks, Eade has a success rate of 67 percent, with an average return per recommendation of +10.5 percent. The analyst is ranked 163 out of 3,910 analysts.

At the time of writing, shares of Republic Services were trading up 0.42 percent at $47.77.

Latest Ratings for RSG

DateFirmActionFromTo
May 2019Initiates Coverage OnSector Perform
Apr 2019UpgradesHoldBuy
Apr 2019DowngradesBuyHold

View More Analyst Ratings for RSG
View the Latest Analyst Ratings

Posted-In: Argus Research John EadeAnalyst Color Long Ideas Price Target Initiation Analyst Ratings Trading Ideas

 

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