3 Reasons Rollins Stock Could Rise

MarketsMotley Fool

Bug control is big business.

That's certainly true for Rollins Inc. (NYSE: ROL). The parent company of Orkin and other pest-control brands is a bug slayer extraordinaire. And with fears surrounding insect-borne diseases mounting, Rollins is enjoying solid increases in sales and profits.

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Rollins' strong operating performance has helped it deliver market-crushing returns to shareholders over the past decade. Yet far more gains may lie ahead. In fact, here are three reasons Rollins' stock price can continue to rise in the coming years.

New outbreaks

Bugs can spread a wide range of nasty illnesses. Every year, millions of people contract diseases that insects transmit, which can result in debilitation, disfigurement, and even death.

Recent outbreaks of insect-borne diseases such as Zika virus have served to heighten fears of these dangerous health risks. During the company's first-quarter earnings call, CEO Gary Rollins highlighted the increasingly important need for Rollins' services:

The growing health threat from insects and other pests is likely to boost demand for Rollins' services for the foreseeable future.

Climate change

Recent research indicates that there's been an increase in intense hurricane activity in the North Atlantic since the 1970s. This trend is expected to continue; scientists predict that there will probably be more intense hurricanes with higher wind speeds and greater precipitation as a result of global warming. While this news should be disconcerting for the millions of people who live in areas exposed to hurricanes, Rollins is likely to benefit from the increase in intense storm activity.

In the aftermath of hurricanes Harvey and Irma, COO John Wilson had this to say on the topic during the company's third-quarter earnings call:

CFO Paul Northen added:

Thus, recent and future storms appear likely to create an even greater need for Rollins' pest control services.

Industry consolidation

Acquisitions are also helping to fuel Rollins' growth. The company's balance sheet strength -- which includes more than $100 million in cash and no long-term debt -- combined with its bountiful free cash flow production allow Rollins to consistently scoop up smaller players in the highly fragmented pest-control industry.

These acquisitions have helped Rollins expand beyond its core bug-busting operations into high-growth wildlife-control businesses. They've also accelerated the company's international expansion.

Moreover, management has proved adept at allocating shareholder capital, as evidenced by Rollins' greater than 30% average return on equity over the past half-decade. The company excels at successfully integrating acquisitions, boosting their sales and profits in the process.

As such, investors should expect Rollins to remain on the hunt for more value-creating acquisitions.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Rollins. The Motley Fool has a disclosure policy.