Waste management is a dirty business… yet a profitable one.
That is thanks largely to the industry's evolution from just picking up rubbish to being environmental services purveyors that help corporations reach their sustainability commitments.
And make no mistake – environmental services are a big business. The total addressable environmental services market generates approximately $107 billion of annual revenue, which includes the $78 billion U.S. recycling and solid waste industry and $29 billion in the broader environmental services industry.
These industries remain highly fragmented though, providing consolidation opportunities to drive growth and scale.
These opportunities are being pursued by the second-largest U.S. provider of services in the non-hazardous solid waste industry, based on revenues, Republic Services (RSG). The company was founded in 1996 and serves 14 million customers in 41 states. It is a fully integrated waste management company, with operations ranging from waste collection and compacting to recycling and renewable energy generation.
How Republic Services Cleans Up Profitably

Despite the perception that Republic Services is a “dull” company in the waste management business, it has strong growth prospects.
This is largely thanks to its $2.2 billion acquisition of U.S. Ecology in 2022. The acquisition strengthened Republic's environmental services capabilities, and included specialty waste and hazardous waste landfills, wastewater treatment facilities, and recycling centers.
Republic is already seeing a major boost to its earnings and revenues from environmental solutions, much of which stems from the U.S. Ecology acquisition.
In the first quarter of 2023, Republic topped Wall Street expectations. Its customer retention rate remained at 94%, even as the company raised prices substantially. The company’s first quarter core price increase of 8.2% was just shy of Republic’s high water mark of 8.4% in 2022, was fueled in part by an 11.7% gain in open market pricing and a 5.4% rise in restricted pricing.
Republic’s average recycled commodity pricing was $105 per ton, up by $17 from the previous quarter. That was still roughly half of what it was the prior year, although commodity prices have begun to recover in 2023, as global supply and demand imbalances correct. Current prices are around $115 per ton.
If we look at environmental solutions, net revenue came in at $408.3 million, which Republic Services CEO, Jon Vander Ark, said was “ahead of schedule.” He also said the initially forecast $40 million in cost synergies is now expected to be closer to $50 million.
The company's goal is to move from a 20% margin in the environmental services business to 30%, which Vander Ark said could be achieved through pricing opportunities (raising prices) and integration with its recycling and solid waste business.
Republic's Future: Clean Profits Ahead
Looking ahead, Republic seems set to clean up from its 'green' initiatives.
Work continues on its polymer center in Las Vegas, which is slated to open by the end of 2023. The company expects to see $15 million of adjusted EBITDA from the polymer center by 2024. This could ramp up to $70 million in three to four years as more polymer centers open.
I firmly believe these company estimates will turn out to be too conservative.
The polymer centers will produce food-grade recycled plastics for consumer goods companies. When Vander Ark announced the company's plans at a convention 18 months ago, he was stunned at the reception he received: about 2,000 representatives from “every major brand and chemical company” packed the convention hall. Twenty companies said they would buy as much recycled polyethylene terephthalate (rPET) as he could supply.
Consumer goods companies have been under increasing pressure to change their packaging, yet the U.S. recycles only 28% of its PET containers, versus 48% in Europe. Such was the demand that Republic's Nevada plant “could be sold out 10 times”, Vander Ark estimated.
The company’s first big customer for the Las Vegas operation is Coca-Cola (KO) , which has pledged to use at least 50% recycled material in its packaging by 2030. This is Coca-Cola's first such collaboration in the U.S.
Republic’s Las Vegas polymer center is the first of four, on which it expects to spend about $275 million. That’s a hefty investment, but Republic forecasts internal rates of return of about a very healthy 20%.
The company’s RNG (renewable natural gas) investments remain on schedule, with six facilities slated to deliver this year. The business could yield $100 million of adjusted EBITDA per year by 2028, Republic estimates.
In May 2022, Republic and Archaea Energy, the industry-leading renewable natural gas producer in the U.S., announced a joint venture to develop 39 RNG projects across the country. The partnership, our country's largest RNG portfolio build-out to date, will convert landfill gas into pipeline-quality RNG that can be used for a variety of applications to displace gas from fossil fuels.
Archaea Energy was bought by the oil giant, BP PLC (BP), in December 2022.
Archaea will develop, engineer, construct and operate the RNG facilities, which will be located at Republic Services' landfills in 19 states. Completion and commissioning of the projects are planned through 2027. When fully operational, the 39 projects are expected to generate more than 12.5 million MMBtu (metric million British thermal units) of RNG annually.
These 'green' projects make Republic Services a growth story in the years ahead. I believe the stock is a buy anywhere in the $140 to $160 range.