A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Here we discuss about Republic Services, Inc.RSG , a stock with an expected long-term earnings per share growth rate of 11.1%.
In the past six months, shares of the company have gained 4.7%, outperforming the 2% increase of the industry it belongs to.
We believe the stock has the potential to exceed expectations moving ahead. The reasons behind our optimism include the company's continuous internal growth increasing operational efficiency.
Let's discuss them in detail.
Continuous Internal Growth via Long-Term Contracts
Republic Services continues to grow internally with the help of long-term contracts for the collection, recycling and disposal of solid waste materials. Such agreements increase the company's contracted revenue base, thereby strengthening its market position.
Further, the company continues to look out for strategic price improvement in order to offset increased costs and enjoy an appropriate return on its substantial investments in vehicles, equipment, landfills, transfer stations and recycling centers. Notably, the company's first-quarter 2018 revenue growth includes a 3.8% positive impact of internal growth.
Republic Services, Inc. Revenue (TTM)
Increased Focus on Operational Efficiency
Republic Services is focused on improving its operational efficiency by shifting to compressed natural gas (CNG) collection vehicles and converting rear-loading trucks to automated-side loaders, which will reduce cost and improve profitability. The company is highly optimistic about the usage of CNG vehicles that will help it compete effectively on grounds of maintaining a clean environment. Despite higher expenses, CNG reduces the company's overall fleet operating costs through lower fuel expenses.
The company's focus on enhancing its operations by streamlining the cost structure, improving revenue quality and seeking growth through profitable investment opportunities is impressive.
Despite riding on significant growth prospects, Republic Services is not free from overhangs. High competition and weak landfill pricing remain concerns. However, we believe that long-term contracts, investments and operational efficiency efforts bode well for the company.
Zacks Rank & Key Picks
Republic Services has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector include Verifone Systems, Inc. PAY , FLEETCOR Technologies, Inc. FLT and WEX Inc. WEX . While Verifone and FLEETCOR Technologies carry a Zacks Rank #2 (Buy), WEX sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The long-term expected earnings per share growth rate for Verifone, FLEETCOR Technologies and WEX is 14.9%, 16.5% and 14.3%, respectively.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.