The second largest solid waste operator in North America, RSG 2Q beats expectations greatly

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(1) RSG reported 2Q22 adjusted EPS of $1.32, beating both JPM and Bloomberg consensus estimates of $1.19 and $1.18, respectively. Adjusted EBITDA was $1,010M, above JPM’s estimate of $975mm and the consensus estimate of $982mm. The beat came from stronger pricing and volumes.

(2) M&A completed YTD including US Ecology is projected to add 9.3% to revenue growth in 2022, with US Ecology presenting 6.3% of the contribution. RSG remains quite active in the M&A space and expects to spend over $600M in acquisitions excluding US Ecology in 2022.

(1) RSG increased its 2022 adj. EPS guidance to $4.77-4.80 (from $4.58-4.65 previously) and its adj. FCF guidance to $1,700-1,725M (from $1,625-1,675M previously, or +$63M). The average yield is expected to be around 5%, and volume is projected to be +2%. Adj. EBITDA for the full year is estimated to be $3.91-3.93bn at a 29.3% margin.

(2) Looking into 2023, the company sees average yield stepping up into the mid-5% range, reflecting the effects of price increase in 2H22 and the lagged impact of index-linked contracts.

JP Morgan is increasing the 2022E EBITDA to $3.92bn from $3.85bn and the 2023E EBITDA to $4.32bn from $4.20bn. The FCF estimates are $1.71bn in 2022 and $1.81bn in 2023. Its Dec-2022 price target increases to $142 from $138 previously. The PT is based on the average of a 13.5x EV/EBITDA multiple applied to the 2023E EBITDA and a 4.2% FCF yield applied to the 2023E FCF/share.