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Republic Services Shows Promise with Core Business Focus
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On Dec 5, Zacks Investment Research updated the research report on waste management service provider Republic Services, Inc. (RSG - Free Report) . Post third-quarter 2016 earnings, the stock outperformed the Zacks categorized Waste Removal Services industry with an average return of 8.8% compared with 6.3% for the latter. It also looks poised for an uptrend with rising earnings estimates for the current year.
Earnings estimate for 2016 have increased from $2.16 to $2.19 per share in the last 60 days, signifying positive investor confidence. Republic Services has also raised the guidance for the current year based on healthy third-quarter results and expectations that recycled commodity prices will remain steady for the remainder of the year. The company expects its adjusted earnings to be in a range of $2.19–$2.20 per share, up from the original guidance of $2.13–$2.17. Additionally, adjusted free cash flow is expected to be in the range of $840 million–$850 million, up from the earlier projection of $820 million–$840 million.
Republic Services is currently focusing on increasing its operational efficiency by converting its fleet to compressed natural gas collection vehicles and modifying rear-loading trucks to automated-side loaders, which will reduce costs and improve profitability. The company is realigning its field support functions by combining two organizational layers, and expects these initiatives to contribute approximately $25 million of annual cost savings from 2018.
As part of the realignment program, the company has centralized the management structure for recycling operations. The new organizational structure is likely to ensure a clear ownership for the recycling and processing market vertical. Republic Services is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy ROI.
Furthermore, 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.
However, margin pressure remains a bottleneck for the company. 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 generate the highest margins and the Collection services generate the lowest margin. The company’s performance is also likely to be hurt by protracted weakness in special waste, industrial volumes and tight municipal budgets. In addition, increased competitive pressure remains a cause of concern for the company.
Waste Management has a long-term earnings growth expectation of 9.8% and has beaten estimates in all the trailing four quarters for an average earnings surprise of 4.8%.
CRA International has a long-term earnings growth expectation of 8% and has beaten estimates thrice in the trailing four quarters for an average negative earnings surprise of 3%.
Exponent has long-term earnings growth expectation of 12% and has beaten estimates thrice in the trailing four quarters for an average positive earnings surprise of 9.7%.
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Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
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Republic Services Shows Promise with Core Business Focus
On Dec 5, Zacks Investment Research updated the research report on waste management service provider Republic Services, Inc. (RSG - Free Report) . Post third-quarter 2016 earnings, the stock outperformed the Zacks categorized Waste Removal Services industry with an average return of 8.8% compared with 6.3% for the latter. It also looks poised for an uptrend with rising earnings estimates for the current year.
Earnings estimate for 2016 have increased from $2.16 to $2.19 per share in the last 60 days, signifying positive investor confidence. Republic Services has also raised the guidance for the current year based on healthy third-quarter results and expectations that recycled commodity prices will remain steady for the remainder of the year. The company expects its adjusted earnings to be in a range of $2.19–$2.20 per share, up from the original guidance of $2.13–$2.17. Additionally, adjusted free cash flow is expected to be in the range of $840 million–$850 million, up from the earlier projection of $820 million–$840 million.
Republic Services is currently focusing on increasing its operational efficiency by converting its fleet to compressed natural gas collection vehicles and modifying rear-loading trucks to automated-side loaders, which will reduce costs and improve profitability. The company is realigning its field support functions by combining two organizational layers, and expects these initiatives to contribute approximately $25 million of annual cost savings from 2018.
As part of the realignment program, the company has centralized the management structure for recycling operations. The new organizational structure is likely to ensure a clear ownership for the recycling and processing market vertical. Republic Services is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy ROI.
Furthermore, 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.
However, margin pressure remains a bottleneck for the company. 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 generate the highest margins and the Collection services generate the lowest margin. The company’s performance is also likely to be hurt by protracted weakness in special waste, industrial volumes and tight municipal budgets. In addition, increased competitive pressure remains a cause of concern for the company.
Republic Services currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Waste Management, Inc. (WM - Free Report) , CRA International, Inc. (CRAI - Free Report) and Exponent, Inc. (EXPO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Waste Management has a long-term earnings growth expectation of 9.8% and has beaten estimates in all the trailing four quarters for an average earnings surprise of 4.8%.
CRA International has a long-term earnings growth expectation of 8% and has beaten estimates thrice in the trailing four quarters for an average negative earnings surprise of 3%.
Exponent has long-term earnings growth expectation of 12% and has beaten estimates thrice in the trailing four quarters for an average positive earnings surprise of 9.7%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>