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Republic Services: Waste Creates Opportunity
06/29/2016 7:00 am EST
This new recommendation could play a big role in the transition from hydrocarbons to renewable energies; with rapid growth coming off a low base, the long-term gains could be powerful, explains growth stock expert Stephen Leeb, editor of The Complete Investor.
This "energy" is stock not on the energy radar screen; that’s because its major business is waste collection and storage. Republic Services (RSG) is the country’s second-largest waste management company.
It is number one in terms of growth, profits, free cash flow, and money returned to investors through dividends — 17 percent annual growth over the past 10 years — and share repurchases.
It’s also the clear number one in vertical integration, where collected waste is transferred to holding stations and then to landfills and then recycled.
But it’s sui generis in its long-term vision of a fully differentiated waste management company that contributes to a green planet.
A small but surging revenue base comes from waste and collection services for the energy industry — fracking, coal, and the like — where waste is an ever-growing problem.
And its rapidly growing recycling operations mean Republic Services profits as commodity prices rise.
Republic Services also has been adding to its capacity to generate renewable fuels and in particular natural gas, a natural product of waste decay.
When energy prices rise, this gives it a major cost advantage in running its own equipment. It also can sell natural gas to outside parties for additional revenue and profits.
While Wall Street currently expects long-term growth of about 7 percent, we think the company’s commodity and energy initiatives will easily add 5 points.
During the last period of rising commodity prices, 2009-2011, earnings growth was nearly 15 percent.
Given our expectations for rising energy and commodity prices and the company’s multiple initiatives in these areas, a long-term growth target of 12 percent could prove conservative.
With its high yield, growing dividends, and high likelihood of surprising Wall Street with its earnings, this high-quality gem is a strong addition to model Growth Portfolio.
By Stephen Leeb, Editor of The Complete Investor