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Here's Why You Should Hold on to ServiceMaster (SERV) Stock

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We believe that ServiceMaster Global Holdings, Inc. , with a long-term expected growth rate of 2% and a market cap of $4.7 billion, is a stock that investors should retain in their portfolio.

Aiding Factors

ServiceMaster’s size and scale provides it with competitive advantage in terms of purchasing power, operating and marketing efficiencies, and route density. With worldwide presence, its segments are large, growing and fragmented. The company is focused on improving its business through investments, marketing and advertising as well as brand awareness and market penetration initiatives.

The company’s revenue streams are diversified across customers and geographies, allowing it to mitigate risks in any particular customer segment and geography. In the first quarter, revenues from Terminix and the ServiceMaster Brands Divestiture Group increased 5% and 3% on a year-over-year basis, respectively. Revenues from European Pest Control and Other came in at $18 million in the quarter, backed by contributions from Nomor in Sweden and Norway as well as Terminix U.K. business.

Risks Associated

Meanwhile, ServiceMaster’s revenues and margins are expected to be under pressure in the upcoming quarters due to impact of the coronavirus outbreak.

The company has a debt-laden balance sheet. Total debt at the end of first-quarter 2020 was $1.72 billion, almost in line with $1.73 billion at the end of the prior quarter. The debt-to-capital ratio of 0.44 is in line with the previous quarter’s 0.44. An increase in debt-to-capitalization ratio indicates higher risk of insolvency in challenging times.

Further, the company’s cash and cash equivalent of $185 million at the end of the first quarter was well below this debt level, underscoring that the company doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $100 million.

Zacks Rank and Stocks to Consider

ServiceMaster currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Zacks Business Services sector are Elastic N.V. (ESTC - Free Report) , SailPoint Technologies Holdings, Inc. (SAIL - Free Report) and DocuSign, Inc. (DOCU - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term earnings (three to five years) growth rate for Elastic, SailPoint Technologies and DocuSign is estimated at 25.9%, 15% and 31.2%, respectively.

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From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.

This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.

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SailPoint Technologies Holdings, Inc. (SAIL) - free report >>

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Elastic N.V. (ESTC) - free report >>