Rollins Well Positioned to Fend Off Mounting Inflationary Pressures in 2022; Shares Remain Expensive

Wide-moat Rollins capped off an already impressive 2021 performance with a strong fourth-quarter showing. 2021 adjusted EBITDA of $546 million tracked 2% ahead of our full-year expectations. On a constant-currency basis, full-year organic sales grew at an elevated 8.7%, aligning with our expectations for a strong cyclical recovery in pest control demand in 2021. However, Rollins’ M&A activity proved more buoyant in late 2021 than we’d anticipated. Tuck-in acquisitions added 2.7% in additional top-line growth in 2021 and drove the business’ modest outperformance relative to our revenue and earnings forecasts. Otherwise, Rollins' late 2021 performance tracked in line with our long-term expectations for the U.S. pest control industry leader. Accordingly, we make no change to our $27.70 fair value estimate. Despite recent share price weakness, Rollins shares still screen expensively, trading at an 8% premium to our fair value estimate at the time of writing.