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Republic Services (RSG) Hits 52-Week High on Core Focus

Shares of Republic Services, Inc. RSG scaled a 52-week high of $48.96 during Friday’s trading session, before closing a notch lower at $48.46. Despite its price appreciation, this Zacks Rank #3 (Hold) stock has the potential to further drive its price upward. The stock is currently trading at a forward P/E of 22.5x and has long-term earnings growth expectation of 8.4%.

Growth Drivers

Republic Services reported relatively healthy first-quarter 2016 results with adjusted earnings exceeding the Zacks Consensus Estimate by a penny. Revenues improved 3.7% year over year to $2,248.6 million, driven by a 2% rise in average yield and a 2.5% increase in volume, partially offset by lower fuel recovery fees of 1.4% and lesser recycling commodity revenues of 0.1%. Core price increased revenues by 3.4% during the quarter.

During the reported quarter, Republic Services realigned its field support functions by combining two organizational layers into one. The company eliminated 3 Regions, consolidated 20 Areas into 10 and streamlined select roles at its Phoenix Headquarters.

With diligent execution of operational plans and a realigned operational structure, Republic Services is likely to generate a healthy cash flow in the future. The company has strong underlying fundamentals and is set to achieve consistent earnings growth while creating significant shareholder value.

Moving forward, Republic Services aims to reinvest and deploy resources into its Area levels through the creation of 10 Area Offices with an enhanced workforce. The company will also consolidate its call center operations. Republic Services intends to invest approximately $20 million in 2016 to design and implement its Customer Resource Centers and other customer-focused initiatives, and expects them to contribute approximately $10 million of annual cost savings from 2018.  In addition, the company anticipates annual cost savings of approximately $25 million from the organizational realignment.

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 into a fee-based recycling processing model to cover processing costs and generate a healthy ROI.

All these measures probably raised investor confidence and drove the shares to a 52-week high.

Stocks to Consider

Stocks that look promising and are worth a look include Nuverra Environmental Solutions, Inc. NESC, Quest Resource Holding Corporation QRHC and US Ecology, Inc. ECOL, each carrying a Zacks Rank #2 (Buy).

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REPUBLIC SVCS (RSG): Free Stock Analysis Report
 
QUEST RES HLDG (QRHC): Free Stock Analysis Report
 
US ECOLOGY INC (ECOL): Free Stock Analysis Report
 
NUVERRA ENV SOL (NESC): Free Stock Analysis Report
 
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