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Republic Services (RSG) Up 8.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Republic Services (RSG). Shares have added about 8.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Republic Services due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Republic Services Q4 Earnings & Revenues Top Estimates

Republic Services reported solid fourth-quarter 2020 results wherein earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $1.00 outpaced the consensus mark by 25% and improved year over year.

Republic Services continued to convert CPI-based contracts to more favorable pricing mechanisms for annual price adjustment. It now has roughly $874 million in annual revenues, or 35% of nearly $2.5 billion CPI-based book of business. The company's average recycled-commodity price per ton sold in the fourth quarter was $110, reflecting a year-over-year increase of $44 per ton.

Revenues

Quarterly revenues of $2.57 billion lagged the consensus estimate by 0.9% and decreased 0.1% year over year. The company’s top line includes an unfavorable impact of 0.2% internal growth and favorable impact of 0.1% acquisitions.

Revenues in the Collection segment totaled $1.93 billion, down 0.9% year over year. Transfer segment revenues of $155.7 million increased 9.9% year over year. Landfill segment revenues of $323.9 million decreased 0.6% year over year. Environmental services segment revenues of $26.7 million declined 44.6% year over year. Other segment revenues of $140.6 million grew 20.7% year over year.

Operating Results

Adjusted EBITDA margin of 29.9% improved 150 basis points (bps) from the prior-year quarter.

Operating income was $432.7 million, down 5.8% from the year-ago quarter. Operating margin declined to 16.8% from 17.8% in the year-ago quarter.

Total selling, general and administrative expenses were $257.7 million, declining 10.9% from the year-ago quarter.

Balance Sheet and Cash Flow

Republic Services exited fourth-quarter 2020 with cash and cash equivalents of $38.2 million compared with $406.4 million at the end of the prior quarter. Long-term debt was $8.77 billion compared with $8.59 billion at the end of the prior quarter.

The company generated $562.6 million of cash from operating activities in the reported quarter. Adjusted free cash flow was $126.8 million.

Dividend Payout

In October 2020, the company paid out $135.4 million of cash dividend to shareholders on record as of Oct 1, 2020. As of Dec 31, 2020, the company’s quarterly payable dividend was $135.5 million to shareholders on record as of Jan 4, 2021. The dividend was paid out on Jan 15, 2021.

The company’s board of directors declared a regular quarterly dividend of 42.5 cents per share for shareholders on record as of Apr 1, 2021. The dividend will be paid out on Apr 15, 2021.

Share Repurchase Activity

During the reported quarter, the company did not repurchase any share. In October 2020, the company’s board of directors approved $2 billion for share repurchases, effective from Jan 1, 2021 till Dec 31, 2023.

2021 Guidance

Republic Services unveiled its full-year 2021 adjusted EPS guidance. Adjusted EPS is expected to be in the range of $3.65-$3.73. The company now expects to generate $1.30 billion to $1.375 billion of adjusted free cash flow for the full year. Adjusted EBITDA margin is expected around 29.5%. It also plans to invest $600 million in acquisitions and $125 million in solar energy for the full year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.38% due to these changes.

VGM Scores

At this time, Republic Services has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Republic Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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