Republic Services Hits 52-Week High on Focused Approach
Shares of Republic Services, Inc. RSG scaled a 52-week high of $61.72 during yesterday’s trading session, before closing a notch lower at $61.68 for a healthy one-year return of 34.1%. Barring minor hiccups, Republic Services’ share price has steadily been on an uptrend since November last year. Despite this rise, this Zacks Rank #2 (Buy) stock has the potential for further price appreciation with long-term earnings growth expectation of 9.6%.
Growth Drivers
Republic Services reported relatively healthy fourth-quarter 2016 results with modest increase in revenues and earnings year over year. Adjusted earnings also exceeded the Zacks Consensus Estimate by 2 cents. Revenues improved 3.9% year over year to $2,379.1 million, driven by a 2.2% rise in average yield and a 0.5% increase in volume. Core price increased revenues by 3.5% during the quarter.
Republic Services, Inc. Price and Consensus
Republic Services, Inc. Price and Consensus | Republic Services, Inc. Quote
With diligent execution of operational plans and a realigned operational structure, Republic Services is likely to generate a healthy cash flow in the future. The company has strong underlying fundamentals and is set to achieve consistent earnings growth while creating significant shareholder value. The stock even outperformed the Zacks categorized Waste Removal Services industry in the last three months with an average return of 11.7% compared with 7.9% gain for the latter.
Moving forward, Republic Services is focusing on increasing its operational efficiency by converting its fleet to compressed natural gas collection vehicles and conversion of rear-loading trucks to automated-side loaders, which will reduce cost and improve profitability. Republic Services is also focused on enhancing its operations by streamlining the cost structure, improving revenue quality and seeking growth through profitable investment opportunities. The company is realigning its field support functions by combining two organizational layers and expects these initiatives to contribute approximately $25 million of annual cost savings from 2018.
As part of the realignment program, the company has centralized the management structure for recycling operations. The new organizational structure is likely to ensure a clear ownership for the recycling and processing market vertical. Republic Services is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy ROI.
All these measures probably raised investor confidence and drove the shares to a 52-week high.
Other Stocks to Consider
Other stocks that look promising include Clean Harbors, Inc. CLH, Waste Connections, Inc. WCN and Advanced Disposal Services, Inc. ADSW, each carrying Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Clean Harbors has a long-term earnings growth expectation of 8.9% and is currently trading at a forward P/E of 63.2x.
Waste Connections has a long-term earnings growth expectation of 20.8% and has beaten earnings estimates thrice in the trailing four quarters for a positive surprise of 14.7%.
Advanced Disposal Services is currently trading at a forward P/E of 72.8x.
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Republic Services, Inc. (RSG): Free Stock Analysis Report
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