On February 22, Republic Services (NYSE:RSG) reported its 2020 fourth quarter and full-year earnings. The company recorded a double beat with earnings per share (EPS) coming at $1.00 well above the 80 cents projected by analysts. Republic had a narrower beat on the top line with revenue coming in at $2.57 billion, just above the $2.55 billion that was forecast.
Over the last five years, RSG stock has been kind to both growth and value investors. The stock has nearly doubled over that time. At the same time, the company has delivered a dividend increase in each of those years. In fact, Republic has increased its dividend for 11 straight years.
But the real story for Republic Services is what’s coming in the future. Sustainability is a pillar of the company’s near- and long-term focus. Through the company’s Our Blue Planet initiative, Republic is demonstrating its commitment to the environment through among other things: decreased vehicle emissions, innovative landfill technologies, and the use of renewable energy.
In fact, 20% of the company’s fleet operates on natural gas which reduces unwanted noise and air emissions. But this just appears to be the tip of the iceberg in regard to sustainability.
In 2020, the electric vehicle (EV) sector exploded. Many companies went public in an opportunity to capture investor’s dollars as they sought to raise capital as the EV future begins to move into high gear. To that end, Republic Services has staked out a leadership position in developing an electric fleet.
The industry is facing specific pressures that are driving the move to electrification. First, many states, notable California have regulations that are mandating the conversion to an electric fleet. But aside from the sustainability benefits, companies such as Republic Services are recognizing the need to lower its total cost of ownership.
Electric trucks have the ability to decrease maintenance costs and reduce noise for employees and for their customers. The waste management business is an ideal application for electric trucks because they reduce concern about range anxiety. Specifically, the trucks return to the same location every day. This opens the door to overnight charging while allowing the trucks to complete their routes on a single charge.
Republic is Embracing Multiple Paths
On the company’s earnings call, management emphasized it was forming relationships with multiple providers to achieve its goal. One of the company’s big headlines in December was the breaking off of its relationship with Nikola (NASDAQ:NKLA). The company had entered into a non-binding contract with Nikola for 2,500 vehicles.
However, due to longer than expected development time and unexpected costs, the two companies mutually agreed to “discontinue their collaboration.” When asked about the effect of the dissolution on the company’s books, management said it had no material effect.
And while the potential partnership with Nikola was the company’s most obvious path, Republic also has partnerships with Mack and Peterbilt. In fact, in October Republic began in-service testing of the Mack LR electric truck.
But perhaps most intriguing is the company’s minority investment strategic alliance with Romeo Power (NYSE:RMO). Romeo Power is designing a lithium ion battery solution specifically for the needs of the commercial trucking sector. The company’s battery design is focused on the three key issues that are preventing wide-scale EV battery adoption. Simply put, the company is designing a lighter battery (one with higher energy density) that will allow greater range, will be able to efficiently operate in extreme climates, and address many of the safety concerns that can arise with lithium-ion batteries.
In a press release to announce the partnership, the two companies cited plans to determine what performance metrics Republic would require to me
The two companies will work closely to determine the key performance metrics of Romeo Power’s battery packs that will suit Republic’s specific refuse use-cases. The partnership is forecast to start with Romeo retrofitting two of Republic’s diesel engine trucks by the end of 2021.
Look to Buy RSG Stock On Any Dip
Heading into the earnings report, RSG stock had been trading in a choppy pattern for the last five days. Analysts have a consensus opinion of hold for the stock with a 12-month price target of $96.75. That’s about an 8% upside from its current level.
The company’s electric future is still a few years away, and that means investors should look for opportunistic dips to get ready for its electric future.Leave a comment