Rollins Earnings: Outsize Organic Growth Year To Date Excites Investors, but Shares Expensive

Rollins’ performance remained buoyant in the second quarter of 2023. Organic revenue growth slowed somewhat—to 7.7%, down from 9.2% in the first three months of 2023—but still tracks in line with our full-year expectations for lofty year-on-year growth of 8%. Year to date, Rollins’ commercial pest-control and termite volumes have been particularly strong, leading to the robust top-line performance thus far in 2023. Rollins remains on track to deliver significant earnings growth in 2023 with our full-year estimates largely unchanged—we forecast EBIT of $596 million and EPS of $0.89, representing year-on-year growth of about 21% each. The recent Fox Pest Control acquisition and elevated organic growth both contribute to the strong expected earnings growth of 2023. The inherent operating leverage in Rollins’ cost base also contributes handsomely and we expect meaningful EBIT margin progression of 140 basis points in 2023 to 19.7%.