We are downgrading our recommendation on Republic Services, Incv. (RSG) to Underperform with a target price of $24. The company's first-quarter 2012 adjusted earnings were $0.38 per share, missing the Zacks Consensus Estimate of $0.42. Total revenues increased 0.9% to $1.98 billion, lagging behind the Zacks Consensus Estimate of $1.99 billion.
The company is facing a challenging pricing environment and has lost four contracts in the quarter to its peers. As a result, volumes are expected to remain flat year over year in the second quarter, thereby creating pressure on margins.
We downgrade our recommendation to Underperform as we do not see any near-term volume increase in this tough pricing environment. Our price target of $24 is based on 12.8x our fiscal 2012 earnings estimate.
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