Republic Services (RSG)

Waste management company Republic Services (NYSE:RSG) missed Wall Street’s revenue expectations in Q3 CY2025 as sales rose 3.3% year on year to $4.21 billion. Its non-GAAP profit of $1.90 per share was 6.5% above analysts’ consensus estimates.

Company Overview

Processing several million tons of recyclables annually, Republic (NYSE:RSG) provides waste management services for residences, companies, and municipalities.

Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.

Competitors offering similar products include Waste Management (NYSE:WM), Waste Connections (NYSE:WCN), and Casella Waste Systems (NASDAQ:CWST).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Republic Services grew its sales at a solid 10.2% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Republic Services’s recent performance shows its demand has slowed as its annualized revenue growth of 6.1% over the last two years was below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its number of units sold. Over the last two years, Republic Services’s units sold were flat. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Republic Services’s revenue grew by 3.3% year on year to $4.21 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Republic Services’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 41.7% gross margin over the last five years. Said differently, roughly $41.66 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, Republic Services’s gross profit margin was 41.5%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Republic Services has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Republic Services’s operating margin rose by 1.6 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion shows it’s one of the better Waste Management companies as most peers saw their margins plummet.

In Q3, Republic Services generated an operating margin profit margin of 19.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Republic Services’s EPS grew at a remarkable 14.4% compounded annual growth rate over the last five years, higher than its 10.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Republic Services’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Republic Services’s operating margin was flat this quarter but expanded by 1.6 percentage points over the last five years. On top of that, its share count shrank by 2.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Republic Services, its two-year annual EPS growth of 13.3% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Republic Services reported adjusted EPS of $1.90, up from $1.81 in the same quarter last year. This print beat analysts’ estimates by 6.5%. Over the next 12 months, Wall Street expects Republic Services’s full-year EPS of $6.83 to grow 6.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Republic Services has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 13.7% over the last five years.

Taking a step back, we can see that Republic Services’s margin expanded by 2.2 percentage points during that time. This is encouraging because it gives the company more optionality.

Republic Services’s free cash flow clocked in at $737 million in Q3, equivalent to a 17.5% margin. This result was good as its margin was 3.1 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Republic Services’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.7%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Republic Services’s ROIC averaged 1.6 percentage point increases each year. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Republic Services reported $84 million of cash and $13.27 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $5.27 billion of EBITDA over the last 12 months, we view Republic Services’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $326.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Republic Services beat analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its sales volume missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $208.80 immediately after reporting.

Updated: December 4, 2025 at 9:15 PM EST

Before investing in or passing on Republic Services, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

There are a lot of things to like about Republic Services. To kick things off, its revenue growth was solid over the last five years. And while its flat unit sales disappointed, its impressive operating margins show it has a highly efficient business model. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Republic Services’s P/E ratio based on the next 12 months is 30.2x. Looking at the industrials landscape right now, Republic Services trades at a pretty interesting price. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $247 on the company (compared to the current share price of $215.11), implying they see 14.8% upside in buying Republic Services in the short term.