Trash Talk: Republic Services' Cost Strategy Takes Root

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For a No. 2 player in a slow-moving industry, trash haulerRepublic Services ( RSG ) has been generating a steady stream of recent news.

Investment firm Cascade Investment, controlled by Microsoft co-founder Bill Gates, reported last month that it bought 1.4 million shares of Republic from June 12 to June 18. Imperial Capital launched coverage on Republic on June 5, with an outperform rating and a 12-month price target of 41.

A few days earlier, Republic stirred in new executive blood. The company hired Robert Maruster, former chief operating officer of JetBlue Airways, as its chief operating officer.

Among the drivers for Republic's rating and price target, Imperial Capital analyst Scott Levine cites consistent earnings growth generated by Republic's long-term emphasis on operational execution and capital returns.

Margins have recently been range-bound because of price resistance and a slow industry recovery, Levine says.

But "we expect fortunes to improve going forward," Levine wrote, "as economic and market conditions strengthen and as its cost-savings programs begin to bear fruit."

One example is Ypsilanti, Mich., which last month opted out of its seven-year relationship with Waste Management after Republic underbid the industry's top dog by more than 20% per year.

The town will save $1 million over the next five years, according to the Ypsilanti Courier -- a serious chunk of change for a community of around 20,000 residents.

Waste Management rules the garbage-collection heap. But Republic has consistently loomed large in second place, thwarting a takeover attempt by Waste Management and instead acquiring heavyweight competitor Allied Waste in 2008.

Republic's annualized dividend yield is 2.7%. EPS slipped in 2012 and rose 3% last year. Earnings are expected to dip 1% for 2014, then recover to a 10% gain next year.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: RSG

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