Barron's: Why Republic Services Looks Sexy to Billionaires

Date: July 26, 2010

Source: News Room

A recent article in Barron's Magazine profiles Republic Services which it sees as an attractive investment, especially since analysts believe the stock could reach $37 on earnings that could rise 19% next year. The company more than doubled its sales through its merger with Allied Waste and has already achieved $180 million in synergies, in excess of expectations and ahead of schedule. The merger has given the company greater pricing power and as a result, it is on track to produce more than $700 million of free cash this year, on estimated revenues of $8.2 billion. Even though volumes were off 9.5% last year, the company managed to increase core pricing (excluding fuel and other surcharges) by 3%, which is likely to increase by a similar amount this year.

The article indicates that its stock is attractive on the basis that Republic's enterprise value (market value plus net debt) is only 7.1 times 2011 expected EBITDA (earnings before interest, taxes, depreciation and amortization). Republic has spent $2.3 billion since 2000 to buy back 44% of its shares, CEO James O'Connor, who is retiring this year, expects the board to approve another $40 million repurchase program this year. The company has pared its debt, now equal to 48% of total capital, and pays a dividend of 76 cents, which is likely to increase.

Consequently, Republic has appealed to billionaires Bill Gates and Warren Buffett who have large holdings. As of March 31 this year, Bill Gates, founder and chairman of Microsoft, owned nearly 15% of Republic's 382 million shares through Cascade Investment, while his pal Warren Buffet, through Berkshire Hathaway, holds 10.8 million shares, or 2.8%.

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