Bill Gates Likes Republic Services

Last week Republic Services (NYSE:RSG), the solid waste collection, transfer and disposal services provider, reported that it swung to a net loss during Q4 FY08 (see conference call transcript), hurt by restructuring and other charges.

Net loss stood at $131.70 million, or $0.55 per share, compared to a profit of $82.10 million, or $0.44 per share, in the prior year's quarter. Excluding special items, earnings declined 6.8% to $0.41 per share, thereby missing the consensus estimate of $0.44 per share.

Total revenue for the fourth quarter soared 56.3% to $1.24 billion from $796.00 million, driven by the acquisition of Allied Waste Industries. Looking at the company's business segments, collection revenue spiked 60.1% to $973.60 million from $608.10 million, helped by a 63.5% increase from residential collection, a 64.4% increase from commercial collection, and a 49.5% increase from industrial collection revenue.

Additionally, revenue from the transfer and disposal segment spiked 60.2% to $228.50 million from $142.60 million in the year-ago quarter. However, other revenue declined 6.6% to $42.30 million from $45.30 million on a year-over-year basis.

During the quarter under review, Republic Services and Allied Waste Industries completed their merger to create one waste and environmental services provider. Recently, the company declared a regular quarterly dividend of $0.19 per share, payable on April 15, 2009.

For FY08, total revenue advanced 16.0% to $3.69 billion from $3.18 billion in the previous year. Net income for the year plummeted 74.6% to $73.80 million, or $0.37 per share, from $290.20 million, or $1.51 per share, in FY07.

Looking forward to FY09, the company expects revenue to increase by approximately 129.0%. Furthermore, earnings before the impact of the Allied merger and restructuring charges are anticipated to be in the range of $1.70 to $1.75 per share.

That's an exciting prospect. Perhaps that's one reason why Bill Gates just invested $11 million in the company.

Alexander Green, the Investment Director of The Oxford Club expressed it well in the most recent edition of his highly acclaimed trading service, The Insider Alert: "Gates, of course, is one of the world's wealthiest men and the founder of Microsoft. But it wasn't Microsoft he was buying.

Through his private investment company Cascade Investments, Gates plunked for 500,000 shares of Republic Services (NYSE: RSG), bringing his holdings to more than 53 million shares. [That really catches one's eye!!]

Let's take a closer look at what's going on here...

Last year, Republic Services and Allied Waste Industries completed a merger to become one of the nation's leading waste and environmental service providers.

Today, Republic provides non-hazardous waste collection services for commercial, industrial and residential customers through more than 400 companies in 40 states.

The company also owns or operates 255 transfer stations, 219 solid waste landfills and 86 recycling facilities - and has contracts with more than 3,000 municipalities for waste collection.

Needless to say, this is not glamorous work. But it does have one big advantage: The work is steady in both good times and bad.

You wouldn't know that by looking at the recent share price though. Like so many other companies, Republic is scraping along near its 52-week low even though recent earnings are up 32% on rising revenue.

Gates is voting with his wallet. So far this year, he has made several multi-million dollar purchases of Republic at better and better prices.

Over the last six months, insiders have bought more than 21.5 million shares of Republic. Only 45,000 shares have been sold.

This is a strong indication that the shares are both oversold and undervalued. Especially since the firm's profitability will keep rising throughout this year and next.

In today's negative bear market malaise it's hard to find a company to report on that has this kind of market activity and insider participation.

RSG could more easily go down for awhile before it goes up, but by Bill Gates' example, this one seems to have some big-time potential. Ironically,on a day when the stock market is finally rallying (March 4, 2009) RSG is down on lighter than average volume.

I have an order in to buy some shares if the stock price falls to around $17.66. With the current dividend payout that would make my yield around 4.3%.

However, if the stock were to break above its 50-day moving average I might change my buy order to ride the upside momentum.

Buying stocks right now seems "high risk" due to the economy's problems. I want to start buying financially strong companies that offer services and products that our society can't live without.

That sounds like Republic Services Inc. but the big question right now is, "At what price-per-share is RSG worth buying?"

Disclosure: no positions