Rollins is poised to notch robust and steady gains in the coming decades as it aims to bolster its dominance in the multibillion-dollar pest control industry, according to J.P. Morgan. The investment firm initiated coverage of Rollins at an overweight rating, and a $70 price target, implying roughly 20% upside from Friday’s close. “Rollins combines one of the most resilient models in Industrials … and a vast untapped market opportunity,” J.P. Morgan analyst Tomohiko Sano said Friday in a note to clients. The company operates its pest, termite and wildlife control business under a number of brands including Critter Control, McCall and Orkin, and serves both residential and commercial clients. About 80% of its revenue comes from recurring service contracts, attesting to its reliable growth trajectory, according to J.P. Morgan. Sano sees plenty of room to grow as Rollins has penetrated just 15% of the U.S. pest control market. “The $20B+ U.S. pest control industry remains under-penetrated, offering Rollins a unique runway to compound growth for decades,” he said. Rollins’ enterprise resource planning system rollout and its expansion into select international markets could help bolster growth, according to J.P. Morgan. The bank noted that Rollins has been able to edge out competitors in domestic and international markets due to its high technician retention rate and productivity efforts. “Coupled with ongoing modernization initiatives and a multi-brand strategy, Rollins is positioned to achieve high-single-digit organic growth,” Sano said in the note. He added, that is before any merger and acquisition activity, which could notch an additional 2% to 3% in growth. Potential headwinds could include extreme weather events and climate change, which could alter the make-up of pest populations and shake-up demand for Rollins’ services, J.P. Morgan said. However, it noted that the critter control industry has remained largely resilient, even in times of macroeconomic uncertainty. Analysts are split on Rollins. Seven Wall Street shops rate the stock a buy or strong buy, while an equal number have advised clients to hold its shares, according to LSEG data. Rollins shares closed up 3.5% on Friday, bringing its year-to-date gains to 26%.
