Company Profile (excerpt from Reuters): Republic Services, Inc., incorporated on December 20, 1996, is a provider of non-hazardous solid waste collection, transfer, disposal, recycling and energy services. The Company’s segments include Group 1, Group 2 and Corporate entities. Its Group 1 and Group 2 segments provide integrated waste management services. Group 1 consists of geographic areas located in the western and portions of the mid-western United States. Group 2 consists of geographic areas located in Texas, the southeastern and portions of the mid-western United States, and the eastern seaboard of the United States. As of December 31, 2016, it operated in 39 states and Puerto Rico through 333 collection operations, 204 transfer stations, 192 active landfills, 64 recycling centers, seven treatment, recovery and disposal facilities, and 10 salt water disposal wells. As of December 31, 2016, it also operated 71 landfill gas and renewable energy projects and had post-closure responsibility for 124 closed landfills.
Downloadable PDF version of this valuation:
ModernGraham Valuation of RSG – May 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $21,997,036,526 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.53 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 103.11% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 24.95 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.86 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.53 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -6.22 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.73 |
| MG Growth Estimate | 11.43% |
| MG Value | $85.52 |
| Opinion | Fairly Valued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $39.55 |
| MG Value based on 0% Growth | $23.18 |
| Market Implied Growth Rate | 8.22% |
| Current Price | $68.04 |
| % of Intrinsic Value | 79.56% |
Republic Services, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.55 in 2014 to an estimated $2.73 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 8.22% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Republic Services, Inc. revealed the company was trading above its Graham Number of $39.84. The company pays a dividend of $1.33 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 24.95, which was below the industry average of 51.04, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-35.65.
Republic Services, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$35.65 |
| Graham Number | $39.84 |
| PEmg | 24.95 |
| Current Ratio | 0.53 |
| PB Ratio | 2.86 |
| Current Dividend | $1.33 |
| Dividend Yield | 1.95% |
| Number of Consecutive Years of Dividend Growth | 15 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 3/1/2018 |
| Total Current Assets | $1,354,000,000 |
| Total Current Liabilities | $2,560,200,000 |
| Long-Term Debt | $7,499,700,000 |
| Total Assets | $21,108,700,000 |
| Intangible Assets | $11,450,400,000 |
| Total Liabilities | $13,196,900,000 |
| Shares Outstanding (Diluted Average) | 332,200,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $2.94 |
| Dec2017 | $3.77 |
| Dec2016 | $1.78 |
| Dec2015 | $2.13 |
| Dec2014 | $1.53 |
| Dec2013 | $1.62 |
| Dec2012 | $1.55 |
| Dec2011 | $1.56 |
| Dec2010 | $1.32 |
| Dec2009 | $1.30 |
| Dec2008 | $0.37 |
| Dec2007 | $1.51 |
| Dec2006 | $1.39 |
| Dec2005 | $1.20 |
| Dec2004 | $1.08 |
| Dec2003 | $0.78 |
| Dec2002 | $0.96 |
| Dec2001 | $0.49 |
| Dec2000 | $0.84 |
| Dec1999 | $0.76 |
| Dec1998 | $0.75 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.73 |
| Dec2017 | $2.47 |
| Dec2016 | $1.79 |
| Dec2015 | $1.75 |
| Dec2014 | $1.55 |
| Dec2013 | $1.53 |
| Dec2012 | $1.39 |
| Dec2011 | $1.28 |
| Dec2010 | $1.15 |
| Dec2009 | $1.10 |
| Dec2008 | $1.04 |
| Dec2007 | $1.31 |
| Dec2006 | $1.17 |
| Dec2005 | $1.00 |
| Dec2004 | $0.88 |
| Dec2003 | $0.78 |
| Dec2002 | $0.77 |
Recommended Reading:
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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