On Dec 3, we downgraded our long-term recommendation for
leading waste management company
Republic Services, Inc.
) from Outperform to Neutral. The company's diligent execution of
operational plans and continuous inorganic and organic growth
across the industry verticals augur well for its growth
prospects. However, protracted weakness in special waste,
industrial volumes and tight municipal budgets could weigh on the
margins moving forward.
Why the Downgrade?
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
generates the highest margins and the Collection services
generates the lowest margin. Margin pressure remains a primary
bottleneck for the company.
Volume growth is also expected to remain sluggish in the upcoming
quarters due to sluggish macroeconomic conditions and increased
competitive pressures. Therefore, soft volumes will be a headwind
for Republic Services moving ahead.
However, Republic Services is the second largest domestic
non-hazardous solid waste company in the U.S. The company is
currently focusing on a series of quality acquisition
opportunities, primarily of recycling assets, which is likely to
act as a catalyst for the healthy long-term growth within its top
25 markets. This augurs well for its long-term growth prospects.
Republic Services continues to generate significant free cash
flow, which is utilized for increased dividend payment,
repurchasing shares and strategic acquisitions. Over the years,
the company has returned significant cash to its shareholders as
dividends or share repurchases. In addition, the company has also
historically promulgated a conservative balance sheet with a
healthy liquidity position. As such, we have a balanced neutral
overview on the company.
Other Stocks to Consider
Republic Services has a Zacks Rank #3 (Hold). Other players in
the industry worth considering include
AO Smith Corp.
), both carrying a Zacks Rank #1 (Strong Buy), and
) that retains a Zacks Rank #2 (Buy).
SMITH (AO) CORP (AOS): Free Stock Analysis
ENERSYS INC (ENS): Free Stock Analysis Report
REPUBLIC SVCS (RSG): Free Stock Analysis
REXNORD CORP (RXN): Free Stock Analysis
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