Amid a toxic mix of macroeconomic headwinds, the fears of an economic slump have been soaring. Given this backdrop, let us probe into stocks Rollins, Inc. (ROL), Westinghouse Air Brake Technologies Corporation (WAB), and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB), that could be solid buys now for reasons mentioned in the article.
The Fed has been raising the interest rate for almost a year to curb the stubbornly high inflation. The headline inflation rose 4.9% year-over-year in April, increasing the likelihood of a pause. According to the CME FedWatch tool, markets are now pricing a 90.4% chance of a rate hike pause in June.
However, New York Federal Reserve President John Williams believes that it is too soon to say whether the central bank is done raising interest rates. He argued that policymakers will not hold back if more action is needed.
Moreover, there are fears that the United States could default on debt. This is feared to bring an unprecedented financial catastrophe. JPMorgan Chase CEO, Jamie Dimon, stated, “We’ve got to be very careful about getting close to a default, which could cause a financial panic.”
Given this backdrop, lesser-known stocks ROL, WAB, and OMAB, with stable returns, could be wise investments now to safeguard portfolios against the above-explained headwinds.
Rollins, Inc. (ROL)
ROL provides pest control, termite protection, and wildlife control services to residential and commercial customers in the United States and internationally. It serves clients directly, as well as through franchisee operations.
On April 5, ROL announced the acquisition of FPC Holdings, LLC, which employs more than 1,300 associates. The acquisition is anticipated to accelerate ROL’s long-term growth strategy in new geographies across the United States.
On April 25, ROL’s board of directors declared a quarterly dividend on its common stock of $0.13 per share, payable to the stockholders on June 9, 2023. This represents an increase of 30% from the year-ago quarter.
Its current dividend of $0.52 translates to a 1.23% yield on prevailing prices, and its four-year average dividend yield is 1.17%. The company’s dividend payouts have grown at CAGRs of 16.9% and 16.7% over the past three and five years, respectively.
ROL’s trailing-12-month EBITDA margin of 21.82% is 65.6% higher than the industry average of 13.18%. Likewise, its trailing 12-month gross profit and levered FCF margin of 51.51% and 13.89% are 72.5% and 167.4% higher than the industry averages of 29.85% and 5.20%, respectively.
During the fiscal first quarter that ended March 31, 2023, ROL’s revenues increased 11.4% year-over-year to $658.02 million, while its operating income increased 20.2% year-over-year to $112.24 million. Its net income grew 19.6% from the year-ago value to $88.23 million, while its income per share increased 20% year-over-year to $0.18.
Moreover, its free cash flow for the same quarter stood at $93.14 million, up 17.1% year-over-year. ROL’s total current assets, as of March 31, 2023, stood at $367.87 million, compared to $348.62 million as of December 31, 2022.
The consensus revenue and EPS estimates of $804.65 million and $0.24 for the fiscal second quarter ending June 2023 represent improvements of 12.7% and 19% year-over-year, respectively. ROL surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
Over the past year, the stock has gained 27.7% to close the last trading session at $42.40. Moreover, it has gained 18% over the past three months.
It’s no surprise that ROL has an overall rating of B, which translates to Buy in the POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Stability and Quality. Within the B-rated 40-stock Outsourcing - Business Services industry, it is ranked #18.
Beyond what we have mentioned above, one can see the additional ratings for ROL for Growth, Value, Momentum, and Sentiment here.
Westinghouse Air Brake Technologies Corporation (WAB)
WAB is a provider of technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries globally. The company operates through two segments: Freight and Transit.
On February 15, backed by its strong cash flows, WAB announced a $750 million share buyback reauthorization and a 13% increase in the quarterly dividend to $0.17 per share.
This dividend was paid to its shareholders on March 10, 2023. Its current dividend of $0.68 translates to a 0.69% yield on prevailing prices, and its four-year average dividend yield is 0.64%. The company’s dividend payouts have grown at CAGRs of 8.9% and 6.2% over the past three and five years, respectively.
WAB’s trailing-12-month EBITDA margin of 17.79% is 35% higher than the industry average of 13.18%. Likewise, its trailing 12-month gross profit and levered FCF margin of 30.73% and 6.24% are 3% and 20% higher than the industry averages of 29.85% and 5.20%, respectively.
During the fiscal first quarter that ended March 31, 2023, WAB’s net sales increased 13.9% year-over-year to $2.19 billion, while its gross profit increased 11.8% year-over-year at $665 million.
Its adjusted income from operations increased 12.9% year-over-year to $360 million, while its adjusted net income grew 11.9% from the year-ago value to $235 million. In addition, its adjusted EPS increased 13.3% year-over-year to $1.28.
For the full year 2023, WAB expects its sales to be in a range of $8.70 billion to $9 billion and adjusted earnings per diluted share to be in a range of $5.15 to $5.55. It also expects strong cash flow generation with an operating cash flow conversion of greater than 90%.
The consensus revenue estimate of $2.23 billion for the fiscal second quarter ending June 2023 represents an 8.8% improvement year-over-year. The consensus EPS estimate of $1.33 for the same quarter indicates an 8.1% year-over-year increase. WAB surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 16.4% to close the last trading session at $98.08.
WAB’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Growth, Stability, Sentiment, and Quality. Within the B-rated Railroads industry, it is ranked #2 out of 15 stocks.
Click here to see the additional ratings for WAB (Value and Momentum).
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB)
Headquartered in Mexico City, Mexico, OMAB holds concessions to develop, operate, and maintain airports in Mexico. In addition, the company provides aeronautical services and construction services. It has a strategic alliance with VYNMSA Desarrollo Inmobiliario, S.A. de C.V., to build and operate an industrial park at the Monterrey airport.
OMAB’s current annual dividend translates to a 2.11% yield on prevailing prices, and its four-year average dividend yield is 4.80%. The company’s dividend payouts have grown at CAGRs of 30.5% and 17.1% over the past three and five years, respectively.
OMAB’s trailing-12-month EBIT margin of 50.98% is 428.8% higher than the industry average of 9.64%. Likewise, its trailing 12-month gross profit and EBITDA margin of 56.31% and 55.07% are 87.9% and 316.4% higher than the industry averages of 29.96% and 13.23%, respectively.
For the fiscal first quarter that ended March 31, 2023, OMAB’s total revenues stood at MXN3.22 billion ($181.01 million), up 45.9% year-over-year. Its operating income for the same quarter grew 46.5% year-over-year to MXN1.75 billion ($98.52 million). Its adjusted EBITDA grew 40.6% from the prior-year quarter to MNX1.98 billion ($111.40 million).
Furthermore, its consolidated net income and EPADS stood at MXN1.08 billion ($60.70 million) and $1.24, up 43.5% and 59% year-over-year, respectively.
The consensus revenue estimate of $207.71 million for the fiscal second quarter ending June 2023 represents a 45.7% improvement year-over-year. The consensus EPS estimate of $1.26 for the same quarter indicates a 32.3% increase from the year-ago quarter. OMAB surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 31.2% to close the last trading session at $87.86. It has gained 19.1% over the past three months.
OMAB’s POWR Ratings reflect a positive outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Growth, Sentiment, and Quality. Within the Air/Defense Services industry, it is ranked #21 of 71 stocks.
To see the additional ratings for OMAB (Value, Momentum, and Stability), click here.
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ROL shares were trading at $42.60 per share on Friday morning, up $0.20 (+0.47%). Year-to-date, ROL has gained 17.38%, versus a 8.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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