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Republic Services Likely to Gain From Solid Growth Prospects

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On Dec 11, we updated the research report on waste management firm, Republic Services, Inc. (RSG - Free Report) .

Republic Services is currently focusing on a series of quality acquisition opportunities, primarily of recycling assets, which are likely to act as a catalyst for a healthy long-term growth within its top 25 markets. The company is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy return on investment.

Healthy Growth Dynamics

During third-quarter 2017, Republic Services acquired ReCommunity Holdings II, Inc., the largest independent recycling-processing firm in the United States, for an undisclosed amount. The strategic acquisition is likely to offer an unrivalled competitive advantage in the recycling business that continues to be one of the fastest growing segments of the waste stream. In addition, the deal will also facilitate Republic Services to gain control of multiple long-term municipal agreements of ReCommunity with processing fee-based structures. These agreements align perfectly with Republic Services' innovative recycling pricing model and are likely to generate incremental revenues.

With 26 recycling centers in 14 states, ReCommunity operates single-stream recycling and multi-material processing facilities that transform waste materials into reusable items. These include the recycling of discarded paper into eco-friendly home insulation, aluminum cans and containers to harvest bauxite ore — a raw material for virgin aluminum and PET bottles — into fresh new bottles or carpeting and clothing.

In addition, 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. The company has also historically promulgated a conservative balance sheet with a healthy liquidity position. The stock has outperformed the industry with an average year-to-date return of 14.2% compared with 13.8% gain for the latter.



Moving Forward

Republic Services has pledged its commitment to the Blue Planet sustainability initiative that aims at increasing its recycling capacity by an additional 150,000 tons or more per year by 2018. As part of this initiative, Republic Services is steadily building durable practices and programs to further improve its environmental and social impacts through decreased vehicle emissions, innovative landfill technologies, more use of renewable energy and community engagements. We remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock.

Better-ranked stocks in the industry include S&P Global, Inc. (SPGI - Free Report) , TransUnion (TRU - Free Report) and Accenture plc (ACN - 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.  

S&P Global has a solid long-term earnings growth expectation of 12.5%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 11.1%.

TransUnion has a healthy long-term earnings growth expectation of 10%.

Accenture has a solid long-term earnings growth expectation of 10.3%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 2.6%.

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