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 bear the brunt of tough market conditions.
We believe that ServiceMaster Global Holdings, Inc. (SERV - Free Report) , with a long-term expected growth rate of 6.6% and a market cap of $3.4 billion, is a stock that investors should retain in their portfolio.
Factors That Bode Well
The company’s capital-light business model provides it operating leverage from route density and fixed investments in infrastructure and technology. The company has deployed mobility solutions along with routing and scheduling systems across its businesses to enhance efficiency as well as reduce operating costs.
ServiceMaster enjoys competitive advantage in terms of purchasing power, operating and marketing efficiencies because of its size and scale. With nationwide presence, its segments are large, growing and highly fragmented. It is focused on improving its business through investments, marketing and advertising as well as brand awareness and market penetration initiatives.
The company is also aggressively looking for new opportunities. It will also launch disinfection services at Terminix and is pursuing selective tuck-in acquisitions.
Hurdles to counter
ServiceMaster’s revenues and margins are expected to be under pressure in the upcoming quarters due to impact of the coronavirus crisis.
The company has a debt ridden balance sheet. As of Mar 31, 2020, long-term debt was $1.62 billion while cash and cash equivalents were $185 million. This indicates that that the company needs to generate adequate amount of operating cash flow to service its debt.
Zacks Rank and Stocks to Consider
ServiceMaster currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are CoreLogic, Inc. (CLGX - Free Report) , DocuSign, Inc. (DOCU - Free Report) and SailPoint Technologies Holdings, Inc. (SAIL - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected earnings per share (three to five years) growth rate for CoreLogic, DocuSign and SailPoint are 11%, 46.8% and 15%, respectively.
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