Republic Services: A Good Long-Term Bet

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Mar 29, 2015

Republic Services (RSG, Financial) ended fiscal 2014 strongly, delivering impressive improvement in key financials. This year, Republic is confident of delivering better results as it plans to undertake several strategies to bolster its performance. Let us take a look at its strategies.

Key growth driving initiatives

Republic is undertaking initiatives that are mainly focused on generating consistent earnings and cash flow growth. These initiatives are also expected help company improve return on invested capital. Besides these, Republic is also focusing on areas such as customer experience and is putting efforts enhance the overall customer experience. In order to maintain its margins, a laser focus on cost reduction initiatives will be cherry on the cake for the company.

Moving on, Republic is has narrowed its area of focus. It is now focusing on core assets and is now shutting down non-performing assets to be profitable. Under this, Republic has closed down seven older recycling facilities which were not yielding good returns. However, it is making investments in recycling facilities to improve its profitability and increase capabilities.

Wise moves

Republic Services has also acquired Rainbow Disposal which the analysts think is a wise move by the company. This is expected to enhance Republic’s Southern California foot print, ensuring its growth strategy going forward. Further, Rainbow has highly favourable and growing market position, long term franchise agreements and diversified service offering which will undoubtedly enhance republic’s position in the market. In addition, Republic is also nearing completion of a definitive agreement to acquire Tervita which provide Republic a platform to expand its presence in US, ENP waste sector along with its experience and high quality workforce.

Under this, Republic is anticipating ENP waste sector to be solid long term growth driver for Republic as its assets are already in a sound position with good returns from Bakken, Eagle Ford and Permian basins. This brings bright growth opportunities for Republic in future. Moreover, it has made some commendable moves in the past which are paying off for it. It has launched Resource customer portal to have a laser focus on customers to differentiate its service offering and build customer loyalty. It is pleased to see over 500,000 enrolment till date which clearly reflects the success of Republic’s initiatives.

Republic has also launched the My Resource mobile app which is an expansion of its customer’s online management tool.

Conclusion

The stock is reasonable with a trailing P/E of 26.25 while the forward P/E of 18.26 indicates good earnings growth in the near term. Its profit margin of 6.23% is also impressive and can further lead Republic to gain good market share in future. Considering all these points, I would like to suggest the investors to definitely pick Republic Services in their portfolio.