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Under the Radar: Rollins reels in sales, earnings Add to ...

Jake Lynch is a ratings investment analyst with TheStreet.com.

Companies that have achieved profits because of cost cuts are unsafe places to weather a stock-market correction. The best companies have been able to retain sales momentum during the recession. Here is an under-the-radar pick that posted 12% revenue growth over a one-year period and is doing the dirty work in our struggling economy.

Atlanta-based Rollins provides pest- and termite-control services to residential and commercial customers in North America. Its wholly-owned subsidiary, Orkin, squashes bugs from Canada to Panama.

And despite the economic black hole, the company posted an impressive second quarter. Revenue remained stable at $285-million, but net income climbed 12 per cent to $26-million as earnings per share climbed 13 per cent to 26 cents, boosted by a lower share count. The gross margin rose from 49 per cent to 50 per cent and the operating margin grew from 14 per cent to 15 per cent.

Although liquidity is a balance-sheet weakness, evident in a quick ratio of just 0.4, the cash balance has grown 48 per cent to $23-million since the year-earlier quarter. And a debt-to-equity ratio of 0.2 demonstrates modest leverage. We give Rollins a financial strength score of 8.9 out of 10, higher than the "buy"-list average, due to its resilience.

Rollins' stock is down 2 per cent in 2009, underperforming major U.S. indices. The stock isn't particularly cheap. The shares trade at a 2009 price-to-earnings ratio of 23 and a 2010 P/E of 21, reflecting a premium to the overall market. But Rollins is less expensive than environmental-services peers such as Clean Harbors and Republic Services . We rate Rollins "buy" and recommend the shares for purchase.

"Under the Radar" is a daily feature of TheStreet.com that uncovers little-known companies worthy of investors' consideration.

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