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Bull of the Day: Rollins Inc. (ROL)

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It’s well-known in small-business circles that the least glamorous businesses are often the most profitable for their owners. High-profile vanity projects tend to have the most competition and the weakest margins, while businesses that provide goods and services that consumers need, but don’t necessarily want to think about often stand on the firmest financial footing.

The same is also true when making investment decisions in large public companies. While exciting technology often gets the headlines, companies in less visible industries can silently rack up the profits.

Rollins, Inc  (ROL - Free Report) is best known to American consumers as the parent of household-name Orkin Pest Control which operates 400 locations on 6 continents.It's less commonly known that Rollins also operates 17 other wholly owned subsidiaries that provide pest and vermin control services and products worldwide. In all, Rollins businesses serve more than 2 million customers.

Rollins’ strategy has been to grow both organically and through acquisitions and the company remains on the lookout for outstanding performers in the industry as potential targets. A strong balance sheet with over $100M in cash and no long term debt means they are in a position to capitalize on opportunities as they occur.

In addition to traditional ant and roach control type household services, Rollins’ companies offer a wide range of solutions to households and businesses in wildlife management, termite eradication, fumigants for the food and commodity industries and even preventative pest-control products incorporated by homebuilders into new construction projects.

Over the past year in what has been a challenging environment for many stocks, Rollins shares are up 21% versus a decline of 6% for the S&P 500.

Pest control is a naturally defensive industry – customers who are suffering an infestation tend not to be particularly sensitive to the business cycle when seeking solutions. With its global footprint and a basically even split between residential and commercial customer revenues, Rollins has been steadily growing revenues year after year:

 

Source: Rollins.com Investor relations

As you might expect from a leader in a “boring” industry, earnings at Rollins have grown at a predictable 12% annualized rate over the past 5 years and in the vast majority of quarters over that period, the company has delivered a modest beat of the Zacks Consensus Earnings Estimate. In the three quarters in which they missed expectations, it has been by negligible amount.

When Rollins reports Q4 results on January 23rd, the consensus estimate is for net earnings of $0.17/share, which would bring full year earnings to $0.73/share – a 25% increase over 2017. Modest yet positive upward revisions for 2018 and 2019 earn the company a Zacks rank #1 (Strong Buy).

Obviously, it can be difficult to get excited about stocks in an industry as pedestrian as pest control, but there’s nothing boring about owning a recession-resistant company that churns out the profits quarter after quarter, year after year. The investments that threaten to put you to sleep when you read about them also allow you to sleep easy at night.

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