Waste management firm Republic Services, Inc. (RSG - Free Report) recently inked a definitive agreement to acquire ReCommunity Holdings II, Inc., the largest independent recycling-processing firm in the United States, for an undisclosed amount. The strategic acquisition is likely to complement Republic’s existing recycling business and enable it to better serve its customers across multiple markets.
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.
The various facilities of ReCommunity recover approximately 1.6 million tons of recycled commodities annually on an average. The state-of-the-art recycling facilities offer an unrivalled competitive advantage to Republic in the recycling business that continues to be one of the fastest growing segments of the waste stream. In addition, the acquisition will also facilitate Republic to gain control of multiple long-term municipal agreements of ReCommunity with processing fee-based structures. These agreements align perfectly with Republic's innovative recycling pricing model and are likely to generate incremental revenues.
The transaction further reinforces Republic’s commitment to its Blue Planet sustainability initiative that aims to increase its recycling capacity by an additional 150,000 tons or more per year by 2018. As part of this initiative, Republic 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.
Republic currently operates 64 recycling centers nationwide which recover approximately 2.5 million tons of recycled commodities annually. The stock has outperformed the industry with an average year-to-date return of 12.5% compared with 8.4% gain for the latter. We remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock.
Better-ranked stocks in the broader industry include S&P Global, Inc. (SPGI - Free Report) , Intertek Group plc (IKTSY - Free Report) and Recruit Holdings Co., Ltd. (RCRRF - 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 9.5%.
Intertek Group has a healthy long-term earnings growth expectation of 13%
Recruit Holdings is currently trading at a forward P/E of 26.1x.
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