Goldman Sachs initiated coverage on Rollins Inc . (NYSE:ROL) with a Buy rating and set a 12-month price target of $49.00 for the pest control company as analysts view ROL as a “differentiated and leading provider of pest control services”.
Rollins holds the position of the largest provider of pest control services in the United States, commanding a significant 24% market share. This market, valued at $10 billion, is characterized by considerable fragmentation and continual growth. Following Rollins in market share are competitors like Terminix with 19%, Rentokil with 15%, and Ecolab with 6% of the market share.
“We believe ROL is a differentiated and leading provider of pest control services leveraged to strong route density, a unique multi-brand strategy that facilitates market share gains, and attractive business model characteristics,” wrote analysts in a note.
Goldman Sachs suggests that ROL's organic revenue growth has undergone a structural increase, rising from mid-single-digits between 2008 and 2020 to high-single-digits since 2021. Analysts attribute the surge to several factors, including an expanded brand portfolio, a stronger focus on door-to-door sales, amplified sales capabilities, heightened cross-selling efforts, as well as advantageous trends stemming from warmer climates and changes in consumer and business behaviors following the COVID-19 pandemic.
Additionally, analysts anticipate a compelling opportunity for margin expansion driven by technological efficiencies and centralization of back-office operations. These enhancements are expected to contribute to robust incremental EBITDA margins of approximately 30%, a significant increase from the present EBITDA margins hovering in the low-20s.
Shares of ROL are down 0.56% in mid-day trading on Tuesday.