Back to top

Analyst Blog

On Dec 3, we downgraded our long-term recommendation for leading waste management company Republic Services, Inc. (RSG - Analyst Report) from Outperform to Neutral. The company’s diligent execution of operational plans and continuous inorganic and organic growth across the industry verticals augur well for its growth prospects. However, protracted weakness in special waste, industrial volumes and tight municipal budgets could weigh on the margins moving forward.

Why the Downgrade?

Margins are expected to remain constrained in the next quarters as Republic Services has more exposure to Collection services and less to Disposal services. Typically, the Disposal services generates the highest margins and the Collection services generates the lowest margin. Margin pressure remains a primary bottleneck for the company.

Volume growth is also expected to remain sluggish in the upcoming quarters due to sluggish macroeconomic conditions and increased competitive pressures. Therefore, soft volumes will be a headwind for Republic Services moving ahead.

However, Republic Services is the second largest domestic non-hazardous solid waste company in the U.S. The company is currently focusing on a series of quality acquisition opportunities, primarily of recycling assets, which is likely to act as a catalyst for the healthy long-term growth within its top 25 markets. This augurs well for its long-term growth prospects.

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 as dividends or share repurchases. In addition, the company has also historically promulgated a conservative balance sheet with a healthy liquidity position. As such, we have a balanced neutral overview on the company.

Other Stocks to Consider

Republic Services has a Zacks Rank #3 (Hold). Other players in the industry worth considering include EnerSys (ENS - Snapshot Report) and AO Smith Corp. (AOS - Snapshot Report), both carrying a Zacks Rank #1 (Strong Buy), and Rexnord Corporation (RXN - Analyst Report) that retains a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
CENTURY ALU… CENX 22.53 +4.50%
ERBA DIAGNO… ERB 2.91 +4.30%
PLANAR SYST… PLNR 4.31 +3.86%
MALLINCKROD… MNK 72.17 +3.83%
GTT COMMUNI… GTT 12.06 +3.52%