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Rollins Inc. (NYSE: ROL)

|About: Rollins, Inc. (ROL)
Summary

My personal note on Rollins Inc. NYSE: ROL.

Good company, but high valuation.

Keep your snow ball (of money) rolling with Rollins Inc. :).

AT FIRST GLANCE

  • Company type: Mid Growth Cyclical Cap ($12.03B).
  • Industry: Industrials - Industrial Services - Pest control.
  • Founded: 1948 (as Rollins Broadcasting).
  • Owner: Rollins family (55.6%, controlling).
  • Rollins Inc is a provider of pest and termite control services. Rollins offers pest control services and protection against termite damage, rodents, and insects to homes and businesses, including hotels, food service establishments, food manufacturers, retailers, and transportation companies. The company and its wholly-owned subsidiaries offer their services to residential and commercial customers in North America and Australia. In Central America, the Caribbean, the Middle East, Asia, the Mediterranean, Europe, Africa, and Mexico, the company operates a franchise system.

VALUATION

Trailing P/E: 52.49 FAIL

Forward P/E: 43.95 FAIL

PEG Ratio (5 yr expected): 6.18 FAIL

Beta: 0.75 PASS

LONG-TERM DEBT/ NET INCOME (<3)? 0.00 PASS

Low CAPEX for current operations maintenance? PASS

Operating margin (10 year average) = 15.07% PASS

Net margin (10 year average) = 9.86% PASS

GROWTH

EPS Growth (Last 5 Years) (>10%): 13.72% PASS

Forward EPS Long Term Growth (3-5 Yrs) (>10%): 8.2% FAIL (morningstar)/ 13% PASS (ValueLine)

Revenue Growth (Last 5 Years): 6.35% FAIL

Cash Flow Growth Rate (Last 5 Years): 12.87% PASS

The company has ROE > 12-15% over last 10 years? 31.87% PASS

The company has ROA > 7% over last 10 years? 17.68% PASS

The company has ROIC > 15% over last 10 years? 31.14% PASS.

Sales has increased consistently over years? PASS

Cash Flow has increased consistently years? PASS

GOOD:

  • Company has good compounding track record with growing EPS supported by reasonable growth of revenue, cash flow, equity.
  • Comparison to SPY with dividend reinvested:
CAGR from 1999 2004 2009 2013
ROL 18.55% 19.62% 22.49% 25.22%
SPY 5.92% 8.13% 13.53% 12.95%
  • Crazy high ROE, ROA, ROIC.
  • Fairly good margins.
  • Strong balance sheet.
  • Low Capital Expenditures.
  • Company has been rising its dividend for 17 consecutive years; fairly good track record of dividend growth.
  • Rank 2 safety (ValueLine).
  • The stock price is very stable, during the last 15 years, the worst year is -4.41% (2008) and max drawdown is -26.08% (2008-2009) compared to SPY with -37.02% and -50.97%.
  • Rollins Inc. is a family own and controlled business with 57.08% share held by insiders (mostly Rollins family).

May 2019:

  • Businesses remains strong: Rollins has increased its presence in the pest control business by expanding abroad through Orkins and opening newer franchises at home. Investments in the latest technology should continue to retain existing customer and add new ones, while enhancing efficiency. Moreover, the company has invested in training and preparing its employees to deal with an anticipated busy season.
  • Benefits from the completed acquisition of Clark Pest Control (which operates in 26 locations throughout California and northwestern Nevada) has increased ROL’s total customers to about 2.4 million. Costs and expenses from the purchase will probably weigh on near-term profits, but the company still has strong balance sheet and profit will likely start flowing in.
  • In the meantime, management is taking steps to keep costs at manageable levels.

NOT GOOD:

  • High valuation.
  • Market sentiment is not very bright.
  • May 2019: unfavorable weather conditions caused termites and other pests to remain inactive during the March period.

Disclosure: I am/we are long ROL.