The stock market has suffered since the beginning of the year due to persistent geopolitical tensions, supply chain disruptions, and rising inflationary pressures. The Consumer Price Index (CPI) showed a year-over-year increase of 8.6% last month, marking a fresh 40-year high.
After raising interest rates twice earlier this year, the Federal Reserve has recently raised its benchmark interest rate by 75 basis points, the largest increase in nearly three decades, to fight the multi-decade high inflation. The central bank also hinted at more aggressive tightening ahead.
Considering the prospects of further interest rate hikes, the Bank of America Global Research strategists have increased the odds of an economic downturn to 40% in 2023. The S&P 500 lost 5.8% last week, marking its biggest weekly loss since March 2020.
Despite the current market volatility, Wall Street Analysts have upgraded their outlook for a few companies that look lucrative enough and can dodge the near-term market fluctuations.
Analysts have raised their outlook for quality stocks Arcos Dorados Holdings Inc. (ARCO) and Republic Services, Inc. (RSG). These stocks are also rated a Strong Buy in our proprietary POWR Ratings system.
Arcos Dorados Holdings Inc. (ARCO)
Headquartered in Montevideo, Uruguay, ARCO functions as a franchisee of McDonald's restaurants. The company has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories. ARCO was recently upgraded by investment analysts at Bradesco Corretora from a “neutral” rating to an “outperform” rating.
Last month, ARCO announced that it intends to redeem $123,000,000 of its outstanding 6.625% senior notes due 2023. The anticipated redemption date was June 10, 2022. This exhibits the company's stable cash flow generating capability and strong balance sheet.
ARCO’s 6.93% trailing-12-months levered FCF margin is 103.3% higher than the 3.41% industry average. Its 49.77% trailing-12-months ROE margin is 190.2% higher than the 17.15%. In addition, its 1.24% trailing-12-months Asset Turnover Ratio is 20.5% higher than the 1.03% industry average.
For the first quarter ending March 31, 2022, ARCO’s total revenues increased 40.9% year-over-year to $790.68 million. Its operating income came in at $48.34 million, compared to an operating loss of $6.81 million in the previous period.
Its net income amounted to $24.50 million, compared to a net loss of $29.71 million in the prior-year quarter. The company’s EPS came in at $0.12 compared to a loss per share of $0.14 in the previous period.
The consensus EPS estimate of $0.04 for the second quarter ending June 2022 represents a 118.7% year-over-year growth. Analysts expect revenue to increase 22.9% year-over-year to $728.29 million for the second quarter ending June 2022.
In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 20.1% year-to-date and 38.3% over the past six months.
ARCO's POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has an A grade for Sentiment and a B for Growth and Value. Within the B-rated Restaurants industry, it is ranked #1 of 44 stocks.
To see additional POWR Ratings for Momentum, Quality, and Sentiment for ARCO, click here.
Republic Services, Inc. (RSG)
RSG offers environmental services in the United States. The company provides collection and processing of recyclable materials, collection, transfer, and disposal of non-hazardous solid waste, and other environmental solutions. Recently, the company was upgraded by research analysts at Deutsche Bank Aktiengesellschaft from a “hold” rating to a “buy” rating.
Last month, RSG and Archaea Energy, Inc. (LFG), a leader in the renewable natural gas industry (RNG) producer in the U.S., announced a joint venture to develop 39 RNG projects across the country. Under this partnership, the country's largest RNG portfolio build-out will convert landfill gas into pipeline-quality RNG that can be used for various applications to displace gas from fossil fuels.
Also, last month, RSG announced that it completed its acquisition of all outstanding shares of US Ecology, Inc. (ECOL). The previously announced purchase price of $48 per share in cash represents a total value of $2.2 billion, including the debt net of cash acquired. US Ecology stock will be delisted from the NASDAQ Global Select Market.
RSG’s 41.07% trailing-12-months gross profit margin is 39.2% higher than the 29.51% industry average. Its 11.54% trailing-12-months net income margin is 72.6% higher than the 6.69%. In addition, its 29.57% trailing-12-months EBITDA margin is 13.3% higher than the 122.71% industry average.
During the first quarter ending March 31, 2022, RSG’s revenue increased 14.4% year-over-year to $2.97 billion. Its operating income grew 13.9% from its year-ago value to $560.60 million, while its net income amounted to $352.00 million, up 19% from its prior-year quarter. The company’s EPS rose 19.4% year-over-year to $1.11.
Analysts expect RSG's revenue to increase 18% year-over-year to $3.32 billion for the second quarter ending June 2022. The company's EPS is expected to grow 8.8% year-over-year to $1.19 in the second quarter ending June 2022. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters.
The company's shares have soared 13.3% over the past year.
RSG's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B grade for Quality, Stability, and Sentiment.
Within the B-rated Waste Disposal industry, it is ranked #2 of 15 stocks. In total, we rate RSG on eight different levels. Beyond what we've stated above, we have also given RSG grades for Growth, Value, and Momentum. Get all RSG ratings here.
ARCO shares were trading at $7.05 per share on Tuesday morning, up $0.05 (+0.71%). Year-to-date, ARCO has gained 21.55%, versus a -20.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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