Republic Services Inc (RSG) Valuation

Based on the GoodMoat Investment Framework's valuation assessment, Republic Services (RSG) does not present an attractive margin of safety. The primary tool, DCF analysis, is proxied by the GoodMoat Target. The current price of $215.84 is 26% above this fair value estimate of $171.06, resulting in a negative margin of safety. According to the framework's MoS bands, this falls into the 'Unfavourable' category, as a favourable rating requires a margin of safety of at least 20%. Supporting this view, the forward P/E of 31.2x appears elevated. While a direct sector average is not provided, this multiple is difficult to justify given the company's low single-digit revenue growth of 2.2% YoY. The framework notes that a P/E of 25-26x can be reasonable for a 50% grower but is high for a 10% grower, making a 31x multiple for a ~2% grower seem expensive. The free cash flow yield of 3.6% (implying a P/FCF of ~28x) also does not signal deep value. When integrating this valuation with the business's quality—evidenced by a strong 20% operating margin and 17.9% ROE—the stock appears to be pricing in high quality but offers no discount for a value-oriented entry point. The assessment is unfavourable as the stock fails the Valuation Gate by trading at a premium to estimated intrinsic value with no margin of safety. Analysis based on data as of 2024-05-15.