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Republic Services Hits 52-week High on Solid Q2 Results

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Shares of waste management firm Republic Services, Inc. (RSG - Free Report) scaled a new 52-week high of $65.54 during Friday’s trading session, before closing a tad lower at $64.30 for a decent year-to-date return of 12.7%. This Zacks Rank #3 (Hold) stock has the potential for further price appreciation with long-term earnings growth expectation of 9.2%.

Growth Drivers

Despite a challenging macroeconomic environment, Republic Services reported strong second-quarter 2017 results, with healthy year-over-year increase in earnings and revenues. GAAP earnings for the quarter were $202.9 million or 60 cents per share compared with $180.8 million or 52 cents per share in the year-ago quarter. The year-over-year increase in earnings was primarily driven by higher revenues.

Excluding non-recurring items, adjusted earnings for the quarter were $205.9 million or 61 cents per share compared with $189.5 million or 55 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter exceeded the Zacks Consensus Estimate by 2 cents. Quarterly revenues also improved 7.5% year over year to $2,526.7 million and beat the Zacks Consensus Estimate of $2,473 million.

With solid quarterly results and favorable growth dynamics, Republic Services raised its adjusted earnings guidance for 2017 to $2.36–$2.39 per share from the previous guidance of $2.32–$2.36. It is likely to generate healthy cash flow in the future with diligent execution of operational plans and a realigned operational structure. The company has strong underlying fundamentals and is set to achieve consistent earnings growth while creating significant shareholder value.

Republic Services’ shares have performed relatively better than the industry with an average year-to-date return of 12.7% compared with a 9.4% gain for the latter. The company is 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 in its top 25 markets. Republic Services is also transitioning into a fee-based recycling processing model to cover processing costs and generate a healthy ROI (return on investment).

The company increased its quarterly dividend by 8% year over year to 34.5 cents per share. This marks the eighth consecutive year of dividend hike by Republic Services. Moving forward, it aims to focus on prudent investment decisions for a disciplined capital allocation, strong and flexible balance sheet position and cash flow enhancement to support dividend growth. Over the years, the company has returned significant cash to its shareholders as dividends or share repurchases to reward them with risk-adjusted returns. In addition, it has historically promulgated a conservative balance sheet with a healthy liquidity position. Such moves, along with a robust operating platform and an efficient management team will likely help in the execution of its strategic priorities and drive net asset value in the future.

All these factors probably raised investor confidence and drove the company’s shares to a fresh 52-week high.

Stocks to Consider

Better-ranked stocks in the industry include Stericycle, Inc. (SRCL - Free Report) , Waste Connections, Inc. (WCN - Free Report) and Gartner, Inc. (IT - 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.  

Stericycle has a long-term earnings growth expectation of 9.1%. It topped earnings estimates thrice in the trailing four quarters with a positive surprise of 4.4%.

Waste Connections has a long-term earnings growth expectation of 12.9%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 3.2%.

Gartner has a long-term earnings growth expectation of 17.3%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 4.6%.

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