Shares of Republic Services Inc (NYSE:RSG) were climbing in early trading on Thursday.
The stock is trading at a discount of around 10% to its direct Solid Waste peers, while the company's growing Environmental Services platform has the potential for margin expansion, according to Truist Securities.
The Republic Services Analyst: Tobey Sommer upgraded the rating Republic Services for from Hold to Buy, while raising the price target from $192 to $220.
The Republic Services Thesis: While the company's Environmental Services segment offers pricing-led growth, there are opportunities for accretive mergers and acquisitions (M&As), Sommer said in the upgrade note.
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Republic Services could execute to $500 million in annual solid waste M&A spend over the next eight to 10 years, Sommer added.
"We see additional opportunity adding to the growing ES platform with an estimated ~$18B in private ES revenues," the analyst wrote. The company is likely to raise its 2024 guidance when it announces its second-quarter earnings next month, he said.
"Leverage has now declined to 2.8x, the lowest in the group, and we believe the company has a wide pipeline of accretive tuck-in opportunities in Solid Waste, Recycling and Environmental Services," Sommer further stated.
RSG Price Action: Shares of Republic Services had risen by 0.67% to $198.20 at the time of publication on Thursday.
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