Investors Pile Into Recession-Resistant Rollins Amid an Uncertain Macro Outlook; Shares Expensive

Wide-moat Rollins continues to please investors in late 2022, with the performance of its U.S. pest control franchise defying heady inflationary pressures and slowing economic activity. Strong organic sales supported third-quarter revenue growth of 12.2%, tracking in line with our full-year expectations. Further, operating profit margin has, as we’d anticipated, remained impervious to cost base pressures in late 2022 as the robust price increase put in place during late spring offset inflation in fuel, labor, and material and supplies expenses. Consequently, Rollins’ third-quarter EBITDA margin of 23.3% was largely flat year on year but is importantly 3.4% higher than its first-quarter 2022 showing that was significantly impacted by inflationary headwinds. We’ve nudged our full-year 2022 EBIT and EPS estimates up by about 3% and 4% to $498 million and $0.75, respectively, with operating leverage benefiting group EBIT margin slightly more than we’d previously credited. But the impact is relatively immaterial; along with a time value of money adjustment, we lift our fair value estimate by 1% to $28 per share.