Rollins Set To Leverage Technology Initiatives For Margin Expansion In FY23: Analyst

RBC Capital Markets analyst Ashish Sabadra reiterated Outperform rating on Rollins, Inc. ROL, raising the price target to $52 from $45.

The company is expected to release its second-quarter financial results after the market closes on July 26. 

In 2Q, the analyst predicts demand trends to continue, given the warmer weather in the U.S., particularly on the East Coast.

Sabadra expects a solid quarter with revenue slightly above consensus (higher Commercial, in-line Residential, partially offset by softer Termite) as ROL executes on cross-sell opportunities while modestly benefiting from pricing actions in March and January. 

The analyst notes that ROL will focus on improving SG&A efficiency and technology initiatives to drive margin expansion in FY23. 

Sabadra's estimate for 2Q revenue stands at $804 million, with an EPS estimate of $0.23.

Sabadra remains remarkably optimistic about ROL's strong free cash flow, or FCF generation, and the unlevered balance sheet that boosts optionality for bolt-on M&A opportunities.

Accordingly, the analyst raised the 2Q residential revenue estimate from $362 million to $373 million, representing 14.8% growth.

For 2Q, the adjusted EBITDA estimate comes down from $182 million to $175 million (21.8% margin) on modest increases to the cost of services and SG&A estimates.

Going ahead, the analyst expects the Fox acquisition to add between $90 million-$100 million of revenue in FY23.

Sabadra also increased the FY23 revenue estimate from $1.354 billion to $1.392 billion, representing 14.8% growth on solid demand and bolt-on M&A. 

Price Action: ROL shares are trading lower by 0.23% to $43.82 on the last check Thursday.