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Republic Services (RSG) Remains Focused on Core Operations

On Feb 27, Zacks Investment Research updated the research report on waste management services provider, Republic Services, Inc. RSG.

Republic Services has realigned its field support functions by combining two organizational layers. It 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 (return on investment).

In addition, the company is focusing on increasing its operational efficiency by adopting compressed natural gas collection vehicles. It is replacing the rear-loading trucks with automated-side loaders to reduce costs and improve profitability. At the same time, Republic Services is focused on enhancing its operations by streamlining the cost structure, thereby improving revenue quality.

Over the years, the company has also rewarded its shareholders with risk-adjusted returns through dividends or share repurchases. In 2016, Republic Services returned $820 million to the shareholders. Further, the company has a history of maintaining a conservative balance sheet and healthy liquidity position.

With a diligent execution of operational plans, the stock outperformed the Zacks categorized Waste Removal Services industry in the last three months with an average return of 9.8% compared with 7.7% gain for the latter.



Based on healthy fourth-quarter 2016 results and expectations that recycled commodity prices will remain at current levels for 2017, management offered a relatively bullish guidance. The company expects its adjusted earnings to be in a range of $2.32–$2.36 per share, up from the preliminary guidance of $2.31–$2.36. Adjusted free cash flow is expected to be in the range of $875–$900 million, while revenues are expected to be up 4.5–5.0% year over year.

However, margin pressure remains a bottleneck for the company. Margins are expected to remain constrained in the next quarters as Republic Services has more exposure to Collection services and less to Disposal services. Typically, the Disposal services generate the highest margins while the Collection services generate the lowest.

Nevertheless, we remain impressed with the solid growth prospects of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Waste Management, Inc. WM, Rollins, Inc. ROL and Advanced Disposal Services, Inc. ADSW, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Waste Management has a long-term earnings growth expectation of 9.5%. It has beaten earnings estimates thrice in the trailing four quarters for a positive surprise of 3.0%.

Rollins has beaten earnings estimates twice in the trailing four quarters for a positive surprise of 2.9%.

Advanced Disposal Services has beaten earnings estimates twice in the trailing four quarters for a positive surprise of 225%. It is currently trading at a forward P/E of 70.8x.

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Rollins, Inc. (ROL): Free Stock Analysis Report
 
Waste Management, Inc. (WM): Free Stock Analysis Report
 
Republic Services, Inc. (RSG): Free Stock Analysis Report
 
Advanced Disposal Services Inc. (ADSW): Free Stock Analysis Report
 
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Zacks Investment Research

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