The waste management industry stands to benefit from the growing adoption of advanced waste collection and recycling techniques. The industry is likely to gain traction backed by rise in population, increase in environmental awareness and rapid industrialization and urbanization. Strict government restrictions to limit landfills, introduction of sustainable waste management mechanisms and a check on illegal dumping are also expected to create opportunities for the industry.
Per a report by Allied Market Research, the global waste management market size is projected to witness a CAGR of 6% from 2018 to 2025 and reach $484.9 billion.
The Zacks Waste Removal Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #106. This rank places it in the top 41% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two waste removal services stocks — Republic Services Inc. (RSG - Free Report) and Stericycle, Inc. (SRCL - Free Report) . While Republic Services has a market capitalization of $27.91 billion, the same for Stericycle is $4.13 billion.
As the stocks carry a Zacks Rank #3 (Hold), we are using other parameters to provide investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Republic Services scores above Stericycle in terms of price performance. In the past year, shares of Republic Services have rallied 24.7% compared with 1.8% increase of the Zacks S&P 500 composite. Shares of Stericycle have declined 31.2% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
Republic Services’ second-quarter 2019 earnings are projected to grow 6.9%, while that of Stericycle are expected to decline 28.2%. For full year, Republic Services’ earnings are projected to grow 4.5%, while that of Stericycle are expected to decline 24.9%.
Thus, Republic Services has an edge over Stericycle in terms of quarterly and yearly projected earnings growth.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
Republic Services’ earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 1.3%.
Stericycle’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average negative earnings surprise of 5.4%.
Republic Services and Stericycle have a higher debt-to-equity ratio compared with the Zacks S&P 500 Composite’s average of 0.83. But Republic Services, with a leverage ratio of 0.86, has an edge over Stericycle with the same of 1.17.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for Republic Services and Stericycle is 12.7% and 12.6%, respectively. Further, compared with the Zacks S&P 500 Composite’s average of 18.6%, Republic Services is more efficient in using shareholder funds.
EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) ratiois the commonly used metric for valuing waste removal services stocks because of their high debt levels.
We observe that while Republic Services and Stericycle have EV/EBITDA ratios of 12.2 and 10.5, respectively, compared with the Zacks S&P 500 Composite’s figure of 11. This implies that Stericycle is undervalued compared with Republic Services as well as the Zacks S&P 500 Composite.
Our comparative analysis shows that Republic Services scores over Stericycle in terms of price performance, quarterly and yearly projected earnings growth, earnings surprise history, ROE and leverage ratio.
However, a faster share price rally in the past year has led to a relatively rich valuation for Republic Services compared with Stericycle.
Stocks to Consider
A few better-ranked stocks in the broader Zacks Business Services sector are Navigant Consulting , FLEETCOR Technologies (FLT - Free Report) and NV5 Global (NVEE - Free Report) . While Navigant Consulting sports a Zacks Rank #1, FLEETCOR and NV5 Global carry a Zacks Rank #2 (Buy).
Long-term expected EPS (three to five years) growth rate for Navigant Consulting, FLEETCOR and NV5 Global is 13.5%, 15.4% and 20%, respectively.
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