A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
We believe that Rollins, Inc. (ROL - Free Report) with Growth Score of A and a market cap of $12 billion, is a stock that investors should retain in their portfolio.
Shares of the company have gained 10.7% over the past three months against the 9.5% decline of the industry it belongs to.
Factors That Bode Well
A balanced approach to organic and inorganic growth keeps Rollins’ top line in good shape. The company’s organic revenue growth rate (6.4% in the third quarter of 2019) is healthy driven by strong customer and employee retention. Rollins continues to expand globally through acquisitions. The company made 29 acquisitions in the first nine months of 2019 and 38 in 2018.
The company generates substantial cash flows and has modest recurring CapEx needs. Rollins has a consistent track record of returning capital to shareholders through dividends. In the first nine months of 2019, the company paid out $103.1 dividends. It paid out $152.7 million, $122 million and $109 million in dividends in 2019, 2018 and 2017, respectively. Given a solid capital position, the company is expected to continue enhancing shareholders’ value.
Despite riding on significant growth prospects, Rollins is not free from overhangs. The company is witnessing escalation in costs resulting from acquisitions compensation, maintenance and IT contract expense. Moreover, its policy of acquiring a large number of companies could result in some integration risks. Nevertheless, we believe that favorable growth dynamics and a strong financial profile bode well for Rollins.
Zacks Rank & Stocks to Consider
Currently, Rollins carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments (GPN - Free Report) , Mastercard (MA - Free Report) and Cardtronics (CATM - Free Report) . While Global Payments sports a Zacks Rank #1, Mastercard and Cardtronics carry a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 15.9% and 4%, respectively.
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