Monday, March 28, 2011

Republic Services Inc. (RSG, $29.94)

(May 16, 2011 update: All future stock posts will appear on my new subscription-only website at Please visit!)

Republic Services Inc.
(RSG) provides solid waste collection services in 40 states and Puerto Rico. Projected consensus EPS growth is 10.5%, 14.8% and 12.0% for fiscal years 2011-2013. The PE IS 15.8 based on 2011 EPS of $1.89, and RSG pays a dividend of $0.80 per share, with a yield of 2.7%.
(Purchase the stock by the end of business on 03/29/11 to earn the next quarterly dividend.)

Morgan Stanley research says, "2011 will be a year of positive volume growth, increased pricing power, opportunistic debt refinancing, rapidly expanding cash EPS and share buybacks."

While the stock displays various attractive characteristics of a value stock, I wouldn't buy it for that reason. I would buy it because the steady trading range provides an opportunity to make money short-term. The stock was trading solidly between $29-34 prior to the Financial Meltdown of 2008. Since its recovery, it has spent the last year trading between $28-32, and now appears ready to establish a higher trading range. For a short-term trade, I would be a buyer under $30.50 and put in a sell order at $33.50. The opportunity could arise to make this trade several times in 2011.

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Donald Johnson said...

Christa, RSG has a point and figure price objective (not target and not a prediction, but an indication of potential) of $55 with the stock at $29.83. The breakout price is $33. That is, if the stock hits $33, it's a buy. Right now it's in a minor correction. The weekly SAR and MACD indicators are negative. The dailies are buys on increased volume. RSI also is looking more bullish.

Morningstar gives RSG 4 stars out of a potential 5. It estimates the stock' fair value is $38, up about 27% from where it is now. So I'd call this a swing trade, not a short trade. Let your profits run, cut losses at 3% to 5% in this volatile market.

What concerns me is that BSG has fixed contracts with its customers while its fuel costs are soaring. I don't know if it's hedged. RSG also in the midst of an acquisition that saddles it with more debt, which isn't good when interest rates are poised to rise.

On balance, not a bad call.


Crista Huff said...

Don, there are a lot of people who own this stock at $33.50/$34 from '07-'08, and when the price gets there, they will take the money and run, driving the price lower. That's why I'm initially looking at this short-term. But I would also watch the charts closely at that point, because I think it will break out shortly thereafter.

Here's more from Morgan Stanley research today, 03/28/11: "Upon closing a limited partnership created in the 1990s, Blackstone recently distributed nearly 20 mn RSG
shares to its limited partners, creating elevated trading volume since mid-February and an overhang which we calculate will run its course within two weeks. This comes on the heels of Berkshire Hathaway's 3Q10 liquidation, driven solely by a portfolio manager's retirement, which pressured shares through its announcement in November. We believe the combination of positive volume growth, increasing pricing power, opportunistic debt refinancing, share buybacks and rapidly expanding cash EPS will drive shares higher once recent overhangs are eliminated."