Will This Downgrade Hurt Republic Services (RSG) Stock Today?

Story updated at 9:55 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Republic Services (RSG) was downgraded to "hold" from "buy" by KeyBanc (KEY) Tuesday.

Shares of Republic Services fell -0.4%% to $39.19 in morning trading.

The downgrade is due to a valuation call, according to the analyst firm. Republic Services exceeded KeyBanc's $39 price target, and its risk/reward balance has become more balanced according to analysts Joe Box and Sean Egan. "We prefer to wait for a better entry point at this time," the analysts wrote.

The analysts continued, "We acknowledge several catalysts exist that could support the shares, which include: 1) the potential for additional stock accumulation from its largest holder, Cascade; 2) a normalization of CPI, which could help pricing down the road; 3) ongoing improvement in construction volumes; and 4) robust cash flow optionality."

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Separately, TheStreet Ratings team rates REPUBLIC SERVICES INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate REPUBLIC SERVICES INC (RSG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • RSG's revenue growth has slightly outpaced the industry average of 4.1%. Since the same quarter one year prior, revenues slightly increased by 5.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • REPUBLIC SERVICES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, REPUBLIC SERVICES INC increased its bottom line by earning $1.61 versus $1.55 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus $1.61).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Commercial Services & Supplies industry average. The net income increased by 217.9% when compared to the same quarter one year prior, rising from $56.30 million to $179.00 million.
  • You can view the full analysis from the report here: RSG Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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