With the debt ceiling crisis understandably dominating the headlines, many investors seek shelter from the turmoil. For this protection-centric endeavor, few enterprises can compete with waste disposal specialist Republic Services (NYSE:RSG). Basically, no matter what happens with the heated negotiations, someone will always have to take out the trash. Therefore, I am bullish on RSG stock.
Debt Ceiling Fiasco a Perfect Catalyst for RSG Stock
In arguably most cases, a cantankerous environment in Washington can spell trouble for the equities market. Already, investors grapple with the unpredictable — whether their target asset will rise in value or not. Adding even more complexities – especially high-level ones such as the debt ceiling – represents a major no-no. Nevertheless, for RSG stock, the crisis may be the perfect long-term catalyst.
As of this writing, House Speaker Kevin McCarthy “expressed optimism about ongoing negotiations to prevent the United States from defaulting on its debt,” according to TipRanks Team’s news report. However, difficult negotiations have yet to reach a clear indication of a breakthrough.
As AP News pointed out recently, “House Republicans, newly empowered in the majority this Congress, are refusing to raise the debt limit unless [President] Biden and the Democrats impose federal spending cuts and restrictions on future spending.”
However, the president countered consistently by wanting to approve a debt ceiling hike with no strings attached. Here, Biden draws a hard line, emphasizing that “the U.S. always pays its bills and defaulting on debt is non-negotiable,” per AP.
Politically, it’s about as difficult of a situation as one can get. If the Democrats cave, the concession would only reinforce Republicans’ criticism of Biden’s supposed weakness. However, if the Republicans blink first, it would almost surely add to the chaos within conservative circles.
What happens if both sides commit to a dreadful impasse? The White House warns that if the default is protracted, the economy might fall into a recession. While an unpleasant outcome for most enterprises, RSG stock should weather the storm relatively well.
Again, someone always has to take out the trash.
Republic Services Shareholders Can Sleep Easy
Though the mainstream media has been broadcasting updates and editorials regarding the debt ceiling, the informational framework overwhelmingly focuses on the disaster that awaits society – including conspicuous spikes in unemployment – if a deal isn’t reached. Little discussion materialized about the consequences of actually reaching a deal. Arguably, though, shareholders of RSG stock can sleep easy knowing that, for them, the issue doesn’t really matter.
Just to back up, of course, a high-stakes battle such as the debt ceiling debate matters to everyone. However, from a business perspective, Republic’s core relevancy won’t evaporate. Instead, the potency of its business may fade somewhat.
For instance, if the economy slips into recession because of a national debt default, (literal) consumption behaviors may decline. In turn, Republic could see a loss of revenue. However, if a successful negotiation leads to longer-term fiscal irresponsibility, Republic would also incur some demand loss.
Nevertheless, the original point remains: someone always has to take out the trash. Not only that — business is good and thriving.
From a 2019 article by The Guardian, the U.S. “produces far more garbage and recycles far less of it than other developed countries, according to a new analysis by the global risk consulting firm Verisk Maplecroft.”
To be sure, this cynical narrative speaks poorly from the perspective of environmental protection and sustainability. However, it also keeps the lights on for RSG stock.
By the way, it’s important to articulate that the upside thesis for RSG stock doesn’t exclusively operate within an assumptive domain. Instead, prospective investors can see the impressive data for themselves.
In late April, Republic disclosed results for its first quarter of 2023. Specifically, the company posted non-GAAP adjusted earnings per share of $1.24, an increase of 8.8% over the year-ago quarter. On the top line, the waste disposal specialist rang up sales of $3.58 billion, up 20.5% on a year-over-year basis.
Further, within the aforementioned revenue lift, 9.6% of the increase stemmed from organic growth, while 11% of the expansion originated from acquisitions. Finally, net income clocked in at $383.9 million, or 10.7% of revenue. As well, the tally popped higher by 9% year-over-year.
Is RSG Stock a Buy, According to Analysts?
Turning to Wall Street, RSG stock has a Moderate Buy consensus rating based on four Buys, four Holds, and zero Sell ratings. The average RSG stock price target is $154.63, implying 9.1% upside potential.
The Takeaway: Trash is Cash for RSG Stock
While bickering policymakers can’t print cash to make their troubles go away, the underlying economy – recession or no recession – stands poised to print plenty of trash. For waste disposal company Republic Services, it almost amounts to the same thing. Therefore, RSG stock appears attractive based on the permanency of its core relevance.