Investing.com -- The business services sector presents compelling investment opportunities as companies focus on operational improvements and margin expansion.
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Jefferies has identified two standout performers in this space that warrant investor attention due to their strong growth prospects and operational enhancements.
Casella Waste Systems (NASDAQ:CWST) and Rollins (NYSE:ROL) have emerged as Jefferies’ top picks in the business services sector, with both companies demonstrating potential for significant upside through different strategic initiatives.
1. Casella Waste Systems (CWST): Jefferies highlights several improvement areas that should drive growth, including fleet upgrades, labor optimization, and system/technology integration.
These enhancements are expected to unlock synergies, pricing power, and margin expansion. The company is targeting $5 million in synergies from fleet upgrade and automation benefits alone.
Analysts at Jefferies see potential for at least another $5 million (approximately 20 basis points) in upside from systems/technology transition and pricing opportunities.
Jefferies has upgraded Casella Waste Systems to a Buy rating, citing an attractive setup for 2026 as the company’s valuation has reset to 31x price-to-free cash flow compared to its historical average of 38x. The firm believes that Mid-Atlantic integration issues, which previously created headwinds, are now poised to become tailwinds for the company.
In recent developments, Casella Waste Systems has seen varied analyst actions, with Stifel reiterating a Buy rating and JPMorgan initiating coverage with a Neutral rating. The company also appointed Edmond R. ’Ned’ Coletta as its new Chief Executive Officer.
2. Rollins (ROL): Jefferies reiterates a Buy rating on Rollins, describing it as their "best in class" diversified services compounder. The company continues to deliver organic growth above pre-COVID levels through increased sales hiring, disciplined pricing, expanded commercial reach, and a diversified customer acquisition strategy.
EBITDA margins are expected to exceed historical norms, with Jefferies projecting 25% as attainable compared to 22% in 2022. The firm views Rollins’ premium multiple as justified given its consistent high-single-digit organic growth, expanding margins, and robust balance sheet flexibility.
Rollins was recently upgraded to Overweight by Morgan Stanley, while both UBS and RBC Capital also raised their price targets on the company’s stock. Additionally, Rollins announced that its Board of Directors declared a regular quarterly cash dividend of $0.1825 per share.
Both companies represent different aspects of value within the business services sector, with Casella focusing on operational improvements and integration benefits, while Rollins continues to execute on its organic growth strategy with disciplined pricing and margin expansion.
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