Image Source: Republic Services
By Brian Nelson, CFA
The waste hauler industry is one of the most attractive in our coverage. It boasts recession-resistant characteristics, and its oligopolistic structure translates into strong pricing power for those that have disposal capacity. One thing that we can count on besides death and taxes is garbage, and while society is taking steps to limit waste, it’s something that will always be a part of the economic system.
It’s easy to get excited about what’s happening in cryptocurrency or be enthralled by the latest and greatest ETF, but sometimes the most boring of stocks can make for some exciting returns. According to data from Seeking Alpha, Republic Services (RSG) has boasted a near-40% year-to-date return, while Waste Management (WM) has performed nearly as well, with its stock up nearly 36%. Waste Connections (WCN) has done great, too, with its stock up more than 32% on the year. Meanwhile, the S&P 500 has advanced ~23% year-to-date as of the time of this writing.
We not only picked an outperforming group in the waste space, but so far this year, we also picked in Republic Services the best out of this bunch for the Dividend Growth Newsletter portfolio. On Thursday, October 28, the trash taker put up excellent third-quarter results, with revenue advancing a robust 14% and adjusted earnings per share increasing 11%, to $1.11 per share, both exceeding the consensus earnings estimate. Here is what CEO Jon Vander Ark had to say about the quarter in the press release:
We continue to drive outsized revenue growth both organically and through acquisitions. This year already represents the highest level of investment in acquisitions in over a decade. Our acquisition pipeline remains robust, with broad-based opportunities in the recycling and solid waste business and in our environmental solutions business. During the quarter, we continued to execute on our strategic priorities and delivered results that exceeded our expectations. Accordingly, we are raising our full-year financial guidance.
Its 2021 adjusted diluted earnings per share guidance is now $4.10-$4.13, while its adjusted free cash flow guidance for the year is now $1.475-$1.5 billion, up from $4.00-$4.05 per share and $1.45-$1.475 billion previously, ranges that themselves had been increased in the company’s second-quarter release. We like the momentum in areas where it counts, and we wouldn’t be surprised to see Republic Services exceed its free cash flow forecast given that it has already generated $1.4 billion in adjusted free cash flow on a year-to-date basis.
Concluding Thoughts
We’re huge fans of the waste-hauling industry, and we nailed one of the best-performing ideas in Republic Services for the Dividend Growth Newsletter portfolio. Shares of Republic Services have advanced nearly 40% so far this year, and fundamental momentum has continued in its business, with the executive team raising both adjusted diluted earnings per share guidance and adjusted free cash flow guidance for 2021 when it reported third-quarter earnings. Shares yield ~1.4% at the time of this writing.
Republic Services 16-page Stock Report (pdf) >>
Republic Services Dividend Report (pdf) >>
Tickerized for RSG, WM, WCN, CWST, SRCL, EVX, USMV, CLH, CVA, DAR, ECOL, VEOEY, SZEVY, ENGIY
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Image Source: Value Trap
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.